Transaction exposure is the risk a company takes when dealing with financials oversees and with foreign currencies. The risk involved is the exchange rate fluctuating in a sense that would hinder the profits when converting back to the corporation’s home currency. To prevent profit losses a company can perform a serious of hedging methods to eliminate transaction exposure. First, the company could invoice in home currency. Intelligent firms will export with strong currency and import with weak currency, but this can only be done if the customer or supplier is uninformed. Second, the company could use currency risk sharing. This involves the firm forming a contract which states that both parties with bare the exchange rate risk beyond a certain value, but any value within the range is not shared. For example, the contract states the range of $1.50-1.60/ £ is the exchange rate risk not shared between the two parties, but anything outside the range such as $1.43/£ is shared by both parties. This protects against huge exchange rate shifts. Thirdly, the firm can use currency collars. These are contracts bought to protect against exchange rate swings outside the neutral zone, such as the example we mention previously. Four, when doing business with a country whose currency has no option for a forward contract, cross-hedging is the answer. Cross-hedging is a forward contract using a related currency, but the new currency correlation is vital to the success of the hedge. Lastly, exposure netting can be used to eliminate transaction exposure. This can be done by using currency that will minimize exposure risk. For example, suggesting currencies that are not perfectly positively correlated, because exposure in country’s currency can be offset by the exposure in another.