【答案解析】A: What is your idea about foreign exchange risk? B: Foreign exchange risk management begins by identifying what items and amounts a firm has exposed to risk associated with changes in exchange rates. An asset, liability, profit or expected future cash flow stream is said to be exposed to exchange risk when a currency movement would change, for better or for worse, its parent or home currency value. A: I know that risk arises because currency movements may alter home currency values. B: But I'm not quite clear about foreign exchange exposure category. A: The term, exposure, used in the context of foreign exchange, means that a firm has assets, liabilities, profits or expected future cash flow change as exchange rate change. Foreign exchange exposure is usually categorized according to whether it falls into one or more of several categories. B: Oh, I've got it. They are transaction exposure, translation exposure and economic exposure. A: Yes. Transaction exposure arises because a payable or receivable is denominated in a foreign currency. Translation exposure arises on the consolidation of foreign currency denominated assets and liabilities in the process of preparing consolidated accounts. B: Then, economic exposure arises because the present value of a stream of expected future operating cash flows denominated in the home currency or in a foreign currency may vary due to changed exchanged rates.