FX exposure is the amount of money a business has riding on exchange rates. If you will pay or receive foreign currency at a future date, the sterling value of that payment can change before it arrives. The size of that possible change is your exposure.
The three kinds of exposure
Transaction exposure is the one most finance teams mean. It is a specific payment or receipt in another currency on a known date: a US$250,000 supplier invoice due in 90 days, or a EUR 200,000 customer receipt due next quarter. At 1.16, the EUR 200,000 receipt is worth £172,414 today.
Translation exposure appears when a company has overseas subsidiaries or assets and consolidates them into its home currency. The accounts move with the rate even though no cash changes hands.
Economic exposure is the slower effect. If your costs are in dollars and your prices are in pounds, a lasting move in the rate changes your competitiveness, not just one invoice.
The free calculator and the app focus on transaction exposure, because that is the part with dates and amounts you can list.
How to measure it
Reading the number
An exposure of US$600,000 is not a loss. It is the size of the amount that could move. How much it moves depends on the currency pair and how long until the money changes hands. Longer periods give the rate more time to travel, so a payment in twelve months carries more rate risk than one in one month.
The app shows exposure by currency, split into what is already covered by forwards and what is still open, and a typical bad year for the open part. That is evidence to support a conversation, not a forecast.
Common questions
Is FX exposure the same as FX risk? Exposure is the amount. Risk is the chance of it moving, and the cost if it does.
Do I have exposure if I only pay in pounds? If your suppliers price in dollars and pass the cost through in pounds, your exposure can be hidden in their prices. It is worth asking.
Where do I start? List your next twelve months of foreign payments and receipts. The free calculator takes a pasted list.