What do you understand by Exchange Rate Exposures? Describe different types of exchange rate exposures and the techniques used to manage them.
Exchange rate exposure describes the influence of exchange rate movements on the value of a firm or sector of the economy. Exposure is typically measured as the correlation of firm or industry stock returns and exchange rate changes in the context of a market model. Exposure appears to be most prevalent in firms that are small (these are less likely to engage in hedging activities) or involved in international activities. While studies have linked ex ante exchange rate risk with firm investment strategies, it has proven difficult to identify the ex post consequences of exposure on firm or industry behaviour.
In finance, an exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency. For example, an interbank
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