Glossary

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.

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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).  

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