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Operating exposure refers to the extent or scope to which the operating cash flows of the firm are usually affected by variations in exchange rates. The random changes of exchange rates affect the competitive position of the company in the market though these changes may not be measurable easily.
The operating exposure for retailers may be reflected in relation of both the competitive effects and the conversion effects.
The retailers therefore face difficulties especially in setting their prices due to the fluctuations in the exchange of foreign currency of different countries.
In the context of the conversion effect relate to the effects of changes or fluctuations in the exchange rates. The depreciation of the foreign currency affects the operations in the market due to the imbalance of economic forces. The operating exposure of a firm is determined by other factors like the structure of inputs and products in the market especially in relation to the competitiveness and the monopolistic nature of these markets.
The structure of markets affects the way in which the firms operate in the market especially in relation to the strategies and mechanisms to reduce competition and maximize profits which will enable it to operate successfully in the market. The combination of inputs labor, material or capital inputs will determines the operating exposure. The ability of the firm to reduce the effects of the exchange rates will help in regulating the operating exposure of the firm.
In conclusion, the firms should select a combination of both labor and capital inputs as well as the selection of product mix which will help in creation of a smooth operating environment free of the currency crisis.
Cavusgil, S. T., Knight, G. A., & Riesenberger, J. R. (2012). International business: The new realities. Upper Saddle River, N.J: Prentice Hall/Pearson.
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