Certified Treasury Professional Practice Exam 2025 – All-in-One Guide to Exam Success!

Transaction exposure refers to the risk associated with the effects of exchange rate fluctuations on a company's cash flows due to transactions that are already contracted. In the correct answer, a U.S. company's foreign subsidiary in Japan having a receivable denominated in Yen clearly illustrates transaction exposure. This situation means that when the parent company in the U.S. receives payment in Yen, the actual amount converted into U.S. dollars can vary depending on the exchange rate at the time of conversion. If the Yen depreciates against the dollar, the value of the receivable in dollar terms decreases, thus exposing the company to potential loss.

This situation is relevant because it involves a contractual obligation (the receivable) that is impacted by exchange rate movements, making it a classic example of transaction exposure. The other scenarios do not exemplify transaction exposure for a U.S. company since they involve different entities or currencies that do not directly create a cash flow risk in the same way.