The U.S. company would have transaction exposure if both the receivable and the payable are denominated in Yen and the receivable is greater than the payable. If the Yen depreciates against the U.S. dollar, the U.S. company will have a net currency exchange transaction loss. If the Yen appreciates against the U.S. dollar, the U.S. company will have a net currency exchange rate transaction gain. Example: The exchange rate between the Yen and the USD is 1 Yen = $0.0099 US. The U.S. company has a receivable of 100,000 Yen and a payable of 75,000 Yen. The equivalent in U.S. dollars is: Receivable 100,000 Yen × 0.0099 = $990.00 US Payable 75,000 Yen × 0.0099 = $742.50 US. The net of the receivable and the payable is $247.50 US. The Yen depreciates against the USD (1 Yen will buy fewer U.S. dollars), and now 1 Yen = $0.008 US. The U.S. company's 100,000 Yen receivable is now equal to $800.00 US, and the U.S. company's 75,000 Yen payable is now equal to $600.00 U.S. The net of the receivable and the payable is $200.00 US, so the U.S. company has a net currency exchange loss of $47.50 ($200.00 minus $247.50). If instead the Yen appreciates against the USD (1 Yen will buy more U.S. dollars) and now 1 Yen = $0.015, the U.S. company's 100,000 Yen receivable is equal to $1,500.00 US. The U.S. company's 75,000 Yen payable is now equal to $1,125.00 US. The net of the receivable and the payable is $375.00, and the U.S. company has a net currency exchange gain of $127.50 ($375.00 minus $247.50). Thus, whether the U.S. company would lose or gain on the currency exchange transactions would depend upon whether the Japanese Yen were to depreciate or appreciate against the U.S. dollar during the holding period. But the U.S. company would have exposure to currency exchange rate fluctuations either way.
The U.S. company would have transaction exposure if both the receivable and the payable are denominated in Yen and the payable is greater than the receivable. If the Yen depreciates against the U.S. dollar, the U.S. company will have a net currency exchange transaction loss. If the Yen appreciates against the U.S. dollar, the U.S. company will have a net currency exchange transaction gain. Example: The exchange rate between the Yen and the USD is 1 Yen = $0.0099 US. The U.S. company has a receivable of 75,000 Yen and a payable of 100,000 Yen. The equivalent in U.S. dollars is: Receivable 75,000 Yen × 0.0099 = $742.50 US Payable 100,000 Yen × 0.0099 = $990.00 US. The net of the receivable and the payable is $(247.50) US. The Yen depreciates against the USD (1 Yen will buy fewer U.S. dollars), and now 1 Yen = $0.008 US. The U.S. company's 75,000 Yen receivable is now equal to $600.00 US, and the U.S. company's 100,000 Yen payable is now equal to $800.00 U.S. The net of the receivable and the payable is $(200.00) US, so the U.S. company has a net currency exchange gain of $47.50 ([$200.00] minus $[247.50]). If instead the Yen appreciates against the USD (1 Yen will buy more U.S. dollars) and now 1 Yen = $0.015, the U.S. company's 75,000 Yen receivable is equal to $1,125.00 US. The U.S. company's 100,000 Yen payable is now equal to $1,500.00 US. The net of the receivable and the payable is $(375.00), and the U.S. company has a net currency exchange loss of $127.50 ([$375.00] minus [$247.50]). Thus, whether the U.S. company would gain or lose on the currency exchange transactions would depend upon whether the Japanese Yen were to depreciate or appreciate against the U.S. dollar during the holding period. But the U.S. company would have exposure to currency exchange rate fluctuations either way.
The U.S. company would have no transaction exposure on the account payable denominated in dollars because the U.S. company would not need to make a currency exchange between U.S. dollars and Japanese Yen to pay the payable. However, the U.S. company would have transaction exposure on the account receivable denominated in Yen, because when the 100,000 Yen are received, the U.S. company will need to sell the Yen and buy U.S. dollars. If the Yen depreciates against the U.S. dollar, the U.S. company will have a currency exchange transaction loss. If the Yen appreciates against the U.S. dollar, the U.S. company will have a currency exchange transaction gain. Example: The exchange rate between the Yen and the USD is 1 Yen = $0.0099 US. The U.S. company has a receivable of 100,000 Yen. The equivalent in U.S. dollars is 100,000 Yen × 0.0099 = $990.00 US. The Yyen depreciates against the USD (1 Yen will buy fewer U.S. dollars), and now 1 Yen = $0.008 US. The U.S. company's 100,000 Yen receivable is now equal to $800.00 US. The receivable's value in U.S. dollars has declined, and the U.S. company has a currency exchange loss of $190.00 ($800.00 minus $990.00). If instead the Yen appreciates against the USD (1 Yen will buy more U.S. dollars) and now 1 Yen = $0.015, the U.S. company's 100,000 Yen receivable is equal to $1,500.00 US. The U.S. company has a currency exchange gain of $510.00 ($1,500.00 minus $990.00). Thus, whether the U.S. company would lose or gain on the currency exchange transaction would depend upon whether the Japanese Yen were to depreciate or appreciate against the U.S. dollar during the holding period. But the U.S. company would have exposure to currency exchange rate fluctuations either way.
If the U.S. company's account payable and account receivable are denominated in U.S. dollars, the U.S. company would have no transaction exposure because the U.S. company would not need to make any currency exchanges between U.S. dollars and Japanese Yen.
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