Transaction Exposure

See: Transaction Costs.

Transaction exposure is much more respectable than an exposure transaction. You'll have to go to a murkier part of the Internet to learn about that other one.

As to transaction exposure, it relates to international trade. The term describes the risk that unfavorable changes in currency exchange rates will impact a deal.

You sign a contract to buy curling equipment from Canada. You agree to buy 1,000 curling brooms for C$50 each. At the time, the Canadian dollar is trading at 1.25-to-1 against the U.S. dollar. The C$50,000 you are spending for the brooms equates to $40,000 in U.S. dollars. Your plan is to sell the brooms to the underground curling clubs that have been springing up all over inner cities in the U.S. You figure you can get $55,000 for them in U.S. dollars by selling them in America, giving you a profit of $15,000 in U.S. currency.

Then...the exchange rate shifts. The Candian dollar strengthens to 1.15-to-1 against the U.S. dollar. You still need to pay C$50,000 in Canadian currency to get the curling equipment. But now that C$50,000 equates to about $43,500 in U.S. dollars.

Your profit just dropped by about $3,500 due to the shift in currency rates. Transaction exposure.