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Navigate the complex world of currency management with our comprehensive dictionary of financial terms and definitions.

Economic Exposure Management

Economic exposure management is the set of hedging programs, pricing strategies and other measures taken by companies to protect themselves from the effects of adverse currency fluctuations. Economic exposure comprises two cash flow exposures: transaction exposure and operating exposure. Transaction exposure can be managed by implementing the adequate hedging program or combination of hedging programs. The details of each program vary according to the pricing dynamics, the weight of FX in the business, the location of competitors, and the situation in terms of forward points. Operating exposure can be managed by adjusting the firm’s market selection, pricing policy and product mix. With the appropriate hedging programs, many firms have the opportunity to ‘embrace currencies’ —buying and selling in the currency of their suppliers and clients—, thus expanding market share while protecting profit margins.