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As understood before, One way of eliminating foreign currency exchange risk is to invoice in home currency.
The question in kaplan kit was,
If invoices are made in home currency will it eliminate all foreign exchange risks that the company is exposed to?
(The company was trading with customers in foreign countries and no mention of purchases were made)The answer was False, as the company may still be exposed to transaction risk on purchases.
As I’ve mentioned, the question did not mention about any purchases, made by the company, in any foreign country.
And so I assumed that receipts invoiced in home currency will eliminate all foreign currency exchange risks.Please clarify.
Invoicing in the home currency will eliminate the transaction risk, but there will still potentially be translation and economic risks (as explained in our free lectures notes and the lectures that go with them).
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