Textbook Problem

Transaction Exposure Vegas Corp. is a U.S. firm that exports most of its products to Canada. Historically, the firm invoiced its products in Canadian dollars to accommodate the importers. However, it was adversely affected when the Canadian dollar weakened against the U.S. dollar. Because Vegas did not hedge, its Canadian dollar receivables were converted into a relatively small amount of U.S. dollars. After a few more years of ongoing concern about possible exchange rate movements, Vegas called its customers and requested that they pay for future orders with U.S. dollars instead of Canadian dollars. At this time, the Canadian dollar was valued at $0.81. The customers decided to oblige Vegas, as the number of Canadian dollars to be converted into U.S. dollars when importing the goods from Vegas would still be slightly smaller than the number of Canadian dollars needed to buy the product from a Canadian manufacturer. Based on this situation, has Vegas’s transaction exposure changed? Has its economic exposure changed? Explain.