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Exposure netting

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Definition of Exposure netting

Exposure Netting Image 1

Exposure netting

Offsetting exposures in one currency with exposures in the same or another currency,
where exchange rates are expected to move in such a way that losses or gains on the first exposed position
should be offset by gains or losses on the second currency exposure.



Related Terms:

Accounting exposure

The change in the value of a firm's foreign currency denominated accounts due to a
change in exchange rates.


Balance sheet exposure

See:accounting exposure.


Economic exposure

The extent to which the value of the firm will change because of an exchange rate change.


Netting

Reducing transfers of funds between subsidiaries or separate companies to a net amount.


Netting out

To get or bring in as a net; to clear as profit.



Operating exposure

Degree to which exchange rate changes, in combination with price changes, will alter a
company's future operating cash flows.


Payments netting

Reducing fund transfers between affiliates to only a netted amount. netting can be done on
a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).


Exposure Netting Image 2

Transaction exposure

Risk to a firm with known future cash flows in a foreign currency that arises from
possible changes in the exchange rate. Related:translation exposure.


Translation exposure

Risk of adverse effects on a firm's financial statements that may arise from changes in exchange rates.
Related: transaction exposure.


Reinvoicing center

A central financial subsidiary used by an MNC to reduce transaction exposure by having
all home country exports billed in the home currency and then reinvoiced to each operating affililate in that
affiliate's local currency. It can also be used as a netting center.



 

 

 

 

 

 

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