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transaction exposure

Transaction exposure is the degree to which future FX-denominated cash flows from contractually binding transactions are affected by currency fluctuations. Transaction exposure exists whether or not the corresponding receivables/payables have been created. Some elements of transaction exposure are included in the firm’s accounting exposure

This is the case of AR/AP receivables/payables) that have been created and appear on the balance sheet. Other elements of transaction exposure, such as contractually binding SO/PO (sales/purchase orders) not appearing on the balance sheet, are part of the firm’s operating exposure).

Transaction exposure, because of its significance in terms of profit margins and cash flows, is the most widely hedged FX exposure.