Asked by Alyamamah Saleh on Jul 04, 2024
Verified
The following describes a long-run exposure of exchange rate risk. Your firm has subsidiaries throughout the world. Due to the recent depreciation of the dollar against most foreign currencies, the dollar value of your foreign sales has declined as reflected on the parent's financial statements, even though sales growth is strong.
Depreciation
The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.
Long-Run Exposure
Financial risk faced by a company due to fluctuating exchange rates affecting the value of its foreign currency denominated transactions over time.
Financial Statements
Compiled records that convey the financial activities and condition of a business, including the balance sheet, income statement, and cash flow statement.
- Develop an awareness of the potential risks associated with changes in currency exchange rates, including short-term, long-term, and translation aspects.
Verified Answer
MG
Moura GhaziriJul 08, 2024
Final Answer :
False
Explanation :
Long-run exposure of exchange rate risk typically involves the impact of exchange rate changes on a firm's future cash flows and competitive position, rather than the immediate impact on the dollar value of foreign sales as reflected in financial statements. The scenario described is more indicative of transaction exposure, which deals with the effect of exchange rate movements on the value of already-contracted financial obligations.
Learning Objectives
- Develop an awareness of the potential risks associated with changes in currency exchange rates, including short-term, long-term, and translation aspects.