Albert, CEO of XYZ, Inc., desires to expand the company's sales through exports to three foreign subsidiaries. Albert knows that the target subsidiaries' countries require transactions to be denominated in the local currencies. Albert has researched foreign currency risk and knows that there is accounting exposure in accounting statements, operating exposure in future cash flows, and transaction exposure in outstanding obligations. Albert does not understand how these risks apply to XYZ, Inc. under his proposal or if there are any mitigating risk strategies available.

Albert requests you, as head of the risk management division, get ideas about a report that he can present to the board of directors on the potential foreign currency risk if XYZ, Inc. expands sales into these markets. XYZ, Inc.'s reporting currency is the U.S. dollar and the subsidiaries would purchase the merchandise as inventory items.

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