Hello Tutor, I have the question from Kaplan practice kits and its quoted on below
"Which of the following statement concerning whether PZK co should invoice in dollars is/are true?
(i)invoicing in dollars will eliminate all foreign exchange risk that PZK CO is exposed to."
The question PZK CO whose home currency is dollar,trades regularly with customer in a number of different countries.
The answer states that" statement (i) is false -PZK CO may still be exposed to transaction risk of purchase"
Why the company will still exposed to transaction risk in purchase while its invoicing in home currency (dollars)?
Thank you.
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7y ago#1I do not have the Kaplan kit - only the BPP Kit - so I cannot comment on what Kaplan may have written.
However I do have the original exam question and the examiners answer (it was in the December 2014 exam).
The examiners answer states that although there is no transaction risk (and if Kaplan says that there is, then they are wrong, unless they changed the original question), there is the risk that customers in other countries may decide to deal with other companies instead, rather than be invoiced in dollars and so they might lose business.
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