Exposure

Exposure refers to the risk of loss associated with the foreign exchange rates that change frequently. They can have an adverse effect on the financial transactions denominated in some foreign currency rather than the domestic currency of the company.

Essentially, a company's risk that its future cash flows could get affected by the fluctuation of foreign currency rates, (which it has maintained its balance sheet) due to the volatility of the foreign exchange rates.

It is not only those firms who directly make the financial transactions in the foreign currency denominations faces the risk of foreign exposure, but also, the other firms who are indirectly related to the foreign currency is exposed to foreign currency risk.

For example, if Indian company is competing against the products imported from China and if the Chinese yuan per Indian rupee falls, then the importers enjoy decreased cost advantage over the Indian company. This shows, that the companies not having any direct link to the forex do get affected by the change in the foreign currency.