Currently, XYZ Ent. is willing to receive payment in British pounds for the monthly exports it sends to the UK. While all of its receivables are denominated in pounds, it has no payables in pounds or in any other foreign currency. Rachel, the owner of the firm wants to assess her firm's exposure to exchange rate risk.
- Would you describe the exposure of XYZ Ent to exchange rate risk as transaction exposure? Economic exposure? Translation exposure?
- The manager is considering a change in the pricing policy in which the importer must pay in dollars, so that Rachel will not have to worry about converting pounds to dollars every month. If implemented, would this policy eliminate the transaction exposure of Rachel Ent? Would it eliminate the firm's economic exposure? Explain.