CHAPTER 2

FX Exposure: Business, Equity, and Translation

This chapter looks at three more types of FX exposure. The first is FX business exposure, which is the effect of FX rate changes on an operation’s business value. Business value is what an operation would be worth if it has no debt and no cash and marketable securities. The second is FX equity exposure, which is the sensitivity of a firm’s equity share value to unexpected FX rate changes. The third is FX translation exposure, which is the accounting impact of FX rate changes on the reported financial results, particularly the equity book value, of a firm that owns a foreign business operation.

Business Value

Finance theory tells us that a firm’s intrinsic business value is the present value ...

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