The management of accounting exposure revolves around the concept of hedging. The concept of hedging is also use to manage currency fluctuations. Hedging a currency means establishing an offsetting currency position to lock in the home currency value for the currency exposure. The basic objective of hedging is to reduce and eliminate exchange rate. Hedging exchange rate risk is a cost center because it may be costly and be an inefficient way of doing business. Company should evaluate hedging exchange rate risk like a purchase of insurance. Even though hedging is expensive, there is a benefit to hedging. The company will be able to use hedging to forecast future exchange rates more accurately than the other companies in the market. Hedgers are people who engage in forward contracts to protect home currency value of various foreign currency denominated assets and liabilities on their balance sheets. Transaction exposure occurs when a company is dealing with foreign currency denominated assets and liabilities. Risk shifting, currency risk sharing, currency collars, cross-hedging, and exposure netting are methods of managing transaction exposure. Risk shifting is a home currency invoicing that is a zero sum game that is used commonly in international businesses. Currency risk sharing is by developing a customized hedge contract. The contract takes the form of a price adjustment clause, where the base price is adjusted to reflect certain exchange rate changes. However, this is much more risky than risk shifting. Managing transaction exposure includes currency collars which are contracts that are used to protect against currency from going outside the agree range. Sometimes when forward contracts are not available in a currency, its solution is to cross- hedge. Cross-Hedging is a forward contract that has a correlation between the two currencies. Exposure in one currency can be offset by another exposure currency is called exposure netting. Source: Shapiro, Alan C., and Atulya Sarin. Foundations of Multinational Financial Management. Custom Edition for California State University, Fullerton. New Jersey: John Wiley & Sons, Inc., 2009.