2. A key issue facing financial executives of multinational firms is exposure to exchange rate changes.

1. Define exposure, differentiating between accounting and economic exposure.

What role does inflation play?

2. Describe at least three circumstances under which economic exposure is likely to

exist?

3. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b?
4. What is exchange risk, as distinct from exposure?