Foreign Exchange Exposure is a measure of the potential for a firm’s profitability, net cash flow, and market value to change because of a change in exchange rates. An important task of the financial manager is to measure foreign exchange exposure and to manage it so as to maximize the profitability, net cash flow, and market value of the firm.
It is the likelihood that an unexpected change in exchange rates will alter the home currency value of foreign currency cash payments expected from foreign source. Also the likelihood that an unexpected change in exchange rates will alter the amount of home currency needed to repay a debt denominated in a foreign currency.