Question

Vegas Corp. is a U.S. firm that exports most of its products to Canada. It historically invoiced its products in Canadian dollars to accommodate the importers. However, it was adversely affected when the Canadian dollar weakened against the U.S. dollar. Since Vegas did not hedge, its Canadian dollar receivables were converted into a relatively small amount of U.S. dollars. After a few more years of continual concern about possible exchange rate movements, Vegas called its customers and requested that they pay for future orders with U.S. dollars instead of Canadian dollars. At this time, the Canadian dollar was valued at $.81. The customers decided to oblige, since the number of Canadian dollars to be converted into U.S. dollars when importing the goods from Vegas was still slightly smaller than the number of Canadian dollars that would be needed to buy the product from a Canadian manufacturer. Based on this situation, has transaction exposure changed for Vegas Corp.

Answer 1

Answer: See explanation

Explanation:

Transaction exposure is the uncertainty

which is faced by businesses that are involved in international trade. It occurs when there's fluctuation in the exchange rates after a financial obligation has been done by a firm.

From the question above, we can agree that there will be a change in transaction exposure for the company as there'll be a reduction in the transaction exposure. This is because future orders will be in U.S. dollars instead of Canadian dollars.