Textbook Problem

Comparing Transaction and Economic Exposure Erie Co. has most of its business in the United States, but exports some products to Belgium. Its exports were invoiced in euros (Belgium’s currency) last year. The firm has no other economic exposure to exchange rate risk. Its main competition when selling to Belgium’s customers is a company in Belgium that sells similar products, denominated in euros. Starting today, Erie plans to adjust its pricing strategy to invoice its exports in U.S. dollars instead of euros. Based on the new strategy, will Erie be subject to economic exposure to exchange rate risk in the future? Briefly explain.