Economic Exposure
Short definition
Economic exposure is the way FX moves competition, demand and long-run cash — future business not yet invoiced. It is not closed with a forward; it is run with pricing, sourcing and market choice.
Detailed explanation
REER is a better competitiveness signal than one pair. Import inputs plus domestic sales squeeze margin when REER appreciates; exporters see the reverse.
A short-dated transaction hedge does not solve this layer. Natural hedges (moving cost currency toward revenue) and pass-through contracts are the real tools. Lagged pass-through, inflation accounting and rival pricing set the elasticity.
Why it matters for the CFO
If the CFO only watches open FX debt, the real value loss is domestic price losing to an imported rival.
How to read it
Economic exposure is long-run FCF sensitivity. It is hard to measure; talk in scenarios (REER, rival price, pass-through), not a single VaR.
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Definitions are educational. They are not investment, credit or tax advice.