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.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 10, Problem 21QA
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.

This textbook solution is under construction.

Expert Solution

Want to see the full answer?

Check out a sample textbook solution.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.