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Measurement of Transaction Exposure

Transaction exposure measures gains or losses that arise from the settlement of existing financial obligations whose terms are started in a foreign currency. Transaction exposure arises from:

  1. Purchasing or selling on credit goods or services when prices are started in foreign currencies,
  2. Borrowing or lending funds when repayment is to be made in a foreign currency,
  3. Being a party to an unperformed foreign exchange forward contract, and
  4. Otherwise acquiring assets or incurring liabilities denominated in foreign currencies.                                                                                                                   The most common example of transaction exposure arises when a firm has a receivable or payable denominated in a foreign currency.
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