Economic exposure
Foreign exchange risk management.
In foreign exchange risk analysis, the overall risk of adverse effects on an organisation's future operating cash flows, or other cash flows, arising from changes in foreign exchange rates.
For example, key competitors having currency cost bases in weaker or depreciating currencies.
The idea of the FX economic exposure concept is to ensure that all relevant FX risks are recognised, identified and appropriately managed.
The term is also used to refer to the longer-term version of transaction exposure – for transactions expected to be agreed in the future, but not yet contractually committed.
This is sometimes called Pre-transaction risk or Pre-transactional exposure.
Some FX exposures will overlap between categories.
Here as elsewhere, risk identification and risk management are more important than categorisation.
