Exchange rate

The price of one currency in terms of another. At ₹83 to the dollar, $1,000,000 converts to about ₹8.3 crore and ₹10,00,000 converts to about $12,048.

For a company the rate matters through revenue, through costs and through debt. An exporter gains when the rupee weakens; an importer loses; a borrower with dollar debt and rupee revenue loses twice, since the liability grows in rupee terms while the ability to service it does not.

Hedging changes the timing of the effect, not its existence.

Read the currency exposure note before modelling any exporter.

The distinction between transaction exposure and translation exposure matters for how much to worry. Transaction exposure is a real cash flow in a foreign currency and can be hedged. Translation exposure is the accounting effect of restating a foreign subsidiary's balance sheet, which moves reserves without moving cash and usually should not be hedged at all.