Which of the Following Describes the Difference Between Transaction Exposure

question 25

Multiple Choice

Which of the following describes the difference between transaction exposure and translation exposure?

• A) Translation exposure derives from a company's foreign-currency-denominated cash flows, and transaction exposure derives from the foreign assets and liabilities being consolidated onto the parent company's financial statements.
• B) Transaction exposure derives from a company's foreign-currency-denominated cash flows, and translation exposure derives from the foreign assets and liabilities being consolidated onto the parent company's financial statements.
• C) Translation exposure derives from a company's forward exchange contracts, and transaction exposure derives from the foreign assets and liabilities being consolidated onto the parent company's financial statements.
• D) Translation exposure derives from a company's foreign-currency-denominated cash flows, and transaction exposure derives from the company's forward exchange contracts.

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Definitions:

Continuous Random Variables

Variables that can take an infinite number of values within a given range, often associated with measurements in time, distance, or temperature.

Area Under the Curve

A measure used in various statistical analyses to quantitatively summarize the shape of a curve, often related to the performance of a model or the distribution of data.

Standard Normal Random Variable

A random variable that has a mean of zero and a standard deviation of one, following a normal distribution.

Continuous Random Variable

A continuous random variable is a variable that can take an infinite number of values within a given range where each value is measurable.