Question
Crediton plc is a UK firm that exports most of its products to Europe. It historically invoiced its products in euros to accommodate the importers.
Crediton plc is a UK firm that exports most of its products to Europe. It historically invoiced its products in euros to accommodate the importers. However, it was adversely affected when the euro weakened against the British pound. Since Crediton did not hedge, its euro receivables were converted into a relatively small amount of pounds. After a few more years of continual concern about possible exchange rate movements, Crediton called its customers and requested that they pay for future orders with pounds instead of euros. At this time, the European pound was valued at 0.81. The customers decided to oblige, since the number of euros to be converted into pounds when importing the goods from Crediton was still slightly smaller than the number of euros that would be needed to buy the product from a European manufacturer. Based on this situation, has transaction exposure changed for Crediton plc? Has economic exposure changed? Explain.
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