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:
- Purchasing or selling on credit goods or services when prices are started in foreign currencies,
- Borrowing or lending funds when repayment is to be made in a foreign currency,
- Being a party to an unperformed foreign exchange forward contract, and
- 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.