Problem:
Quest Company began operations five years ago. The company produces and sells software. The company's primary market is in the United States, where 60% of sales occur. Ten percent of the company's sales occur in Japan and 30% of sales occur in Europe. Foreign sales are denominated in local currencies. Major software purchases may be paid over a one-year period.
Quest Company has obtained its long-term financing from U.S., Japanese, and German banks. Approximately one-half of the loans from U.S. banks are variable-rate loans, with the remainder of the company's loans being fixed-rate obligations.
Quest Company has seen dramatic fluctuations in earnings during its five years of existence.
Identify the types of risk faced by Quest Company.