Transaction exposure occurs when binding future foreign-currency-denominated cash inflows or outflows. Some elements of transaction exposure are foreign-currency-denominated accounts receivable and debts. These elements are also part of a firm’s accounting exposure, because they are already on the firm’s balance sheet. There are also foreign currency sales contracts, which are entered into, but the goods have not yet been delivered. Transaction exposure overlaps with both accounting and operating exposure.

The article “A wary respect” shows us why Americans often see china as a potential threat. China has become the world’s biggest lender to America through its purchase of American Treasury securities. We can see that America is losing control over its financial securities. Learning that America owes China $1.4 trillion make us aware that America’s obligation to pay China is high and it seems complicated to pay back soon. There are some suggestions found for America to pay back, but they seem extreme. There are two options to repay one is to sell Hawaii and Alaska, and the other one is the suggestion to increasing taxes and reduce government expenditure. My personal opinion out of these two options that seem better to me, are to the suggestion to increase taxes and reduce government expenditure. I also read that China is interested in America’s knowledge in technology. I see this interest could be use as another way to repay. I don’t see another faster way for America to repay China. Thinking about this situation makes me wonder what China would do if they would want their money back. I wouldn’t want to know what China would do to get their money back. I just hope it doesn’t turn to a bad situation.

References:

http://www.economist.com/specialreports/displaystory.cfm?story_id=14678579