Economic Exposure Risk
Economic Exposure risk affects all the organizations regardless of involvement in foreign trade or investment.
Increase in foreign exchange rate will make imported goods more costly in home currency terms. Organizations using imported raw material as an input to the goods or services provided by the organization is exposed to economic risk.
Increase in the cost of raw materials to the organization will lead to increase in the cost of goods produced or services provided by the organization. Organization may have to raise selling price or reduce profit margin to remain competitive in the market against suppliers of imported goods from other foreign countries.
Economic risk is beyond the control of the organization. Organization has to accept that risk. Government can control economic risk in the long term. However, in short term, it is uncontrollable even by government. Organization can use its economic power to influence the actions of government.
