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Applied International Finance I by Thomas J. O'Brien

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CHAPTER 2

FX Economic Exposure

FX economic exposure is sometimes a synonym for FX operating exposure, in the sense of referring to the impact of FX rates on a firm’s actual cash flows as opposed to reported financial statement accounting items. Other times, FX economic exposure refers to a specific type of FX operating exposure where the causes are related to “supply and demand” economics. This chapter introduces the impact of the interaction of FX rate changes and “supply and demand” economics on a company’s FX operating exposure.

Typically, FX economic exposure involves an impact on sales volume that complicates the analysis of FX exposure. As you will see, one complication is that a company’s degree of operating leverage becomes a factor that ...

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