Question
Buffalo Export Corp. is a U.S. firm that exports most of its products to Canada. It historically invoiced its products in CAD to accommodate the
Buffalo Export Corp. is a U.S. firm that exports most of its products to Canada. It historically invoiced its products in CAD to accommodate the importers. However, it was adversely affected when the CAD weakened against the U.S. dollar. Since Buffalo did not hedge, its CAD receivables were converted into a relatively small amount of USD. After a few more years of continual concern about possible exchange rate movements, Buffalo called its customers and requested that they pay for future orders with USD instead of CAD. At this time, the Canadian dollar was valued at 0.78 in CADUSD. The customers decided to oblige since the number of CAD to be converted into USD when importing the goods from Buffalo was still slightly smaller than the number of CAD that would be needed to buy the product from a Canadian manufacturer. Based on this situation, has transaction exposure changed for Buffalo Export Corp.? (8 points) Has economic exposure changed? (8 points) Explain.
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