Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Economic Exposure

What it is:

Economic exposure is the risk that a company's cash flow, foreign investments, and earnings may suffer as a result of fluctuating foreign currency exchange rates.

How it works (Example):

The extent to which a company may be affected by economic exposure depends very much on the company's specific industry and business interests.

Say Company XYZ is a business importing goods from Japan to sell in the United States. If the Japanese yen were gain against the dollar, it would make it more expensive for Company XYZ to purchase goods for import, thereby hurting its operations.

In order to reduce this risk, the company could hedge its business by using the foreign exchange markets (forex), where it can make investments that increase in value when the yen rises.

Why it Matters:

Economic exposure matters most to companies conducting foreign business, as it directly impacts their operations. However, with increased global trade, the effects of economic exposure are felt by all consumers as it can impact the prices paid for foreign goods.

Related Terms View All
  • Tenbagger
    Let's say Company XYZ is trading at $5 a share. John Doe buys 100 shares, costing $500....
  • Collateralization
    Let’s assume you would like to borrow $100,000 to start a business. Even if you have an...
  • Record Low
    For example, let's look at this random chart for Cicso Systems (CSCO). Note the jagged...
  • Qualified Mortgage Insurance Premium
    Let’s say John and Jane Doe buy a house. They obtain a mortgage to buy the home, but...
  • Tax Lien
    When a taxpayer fails to pay either income taxes or property taxes, the taxing authority...