| Course | GF584 Treasury Management II |
|---|---|
| Unit | Unit 2 |
| Paper type | Exposure classification exercise |
| Length | About 990 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF584 Unit 2
Seven Items, Three Labels: A Unit 2 Exposure Classification Exercise for a Grain Dryer Maker
[Student Name]
Purdue University Global
GF584: Treasury Management II
Unit 2 Exposure Classification Exercise
[Instructor Name]
[Date]
The dryer maker, its subsidiary and every amount and rate are composite and illustrative; the articles and textbook cited are real.
Definitions Keyed to What Moves
Transaction exposure is a contracted cash flow whose home-currency value depends on an exchange rate between now and settlement. The amount and date are known; only the rate is not.
Translation exposure is the restatement of a foreign subsidiary's net assets into the parent's reporting currency. It moves reported equity, not cash, unless the assets are sold or the subsidiary's figures feed a contract such as a loan covenant.
Economic exposure is the effect of rates on future operating cash flows through prices, volumes or competitors' costs. No contract exists yet, so neither the amount nor the date is fixed (Adler & Dumas, 1984).
The Grid
Row 1. Australian dealer receivables. Amount: 14.2 million Australian dollars on 90-day terms, $9.40 million at 0.6620. Label: transaction. Reason: invoices are issued, amounts and due dates are set. Response: a forward or a natural offset against Australian costs.
Row 2. Brazilian subsidiary's net assets. Amount: 310 million reais, $56.88 million at 5.45. Label: translation. Reason: the subsidiary's functional currency is the real, and its balance sheet is restated each quarter. Response: report and monitor; hedge only if a contract or covenant depends on the dollar figure.
Row 3. Next season's Australian price list. Amount: about 64 million Australian dollars of expected sales. Label: economic until orders are booked. Response: options or a modest forecast hedge, and pricing decisions.
Row 4. The won-indexed motor contract. Amount: about $20.8 million a year of purchases. Label: transaction. Response: measure each quarter; consider a won forward sized to the clause's sensitivity.
Row 5. The $18 million intercompany loan. Owed by the Brazilian subsidiary to the parent, in dollars. Label: split by entity. Response: hedge at the subsidiary or convert the loan to equity.
Row 6. A German competitor. Its costs are in euros, and it sells dryers in the United States and Australia. Label: economic. Response: cost and sourcing decisions, not a financial hedge.
Row 7. Brazilian farm demand. The subsidiary's sales depend on Brazilian farm incomes. Label: economic. Response: recognize the offset against Row 2.
A Price List Is Not Yet a Receivable
Row 3 could be argued as transaction, because the price list fixes Australian dollar prices for a season. The argument fails because no dealer is obliged to buy. Until an order is placed, the company has quoted a price, not created a receivable, and the volume could be half the forecast in a dry year. The exposure becomes transaction order by order. Treating the whole 64 million as transaction would invite a forward on sales that may never happen, which would create a position rather than remove one.
The label matters because it decides the tool: a receivable can be sold forward safely, a price list cannot, and a translation figure usually should not be hedged at all, so a wrong label leads directly to a wrong trade.
Dollar Invoices, Won Risk
Row 4 is labeled transaction despite the dollar invoices because the price formula is contractual. A won move beyond 3 percent of the 1,375 base changes the next quarter's dollar price by a known rule. The amount at risk is defined by the contract, so the exposure is transaction in substance even though no won is ever paid. A register that sorts by invoice currency would miss it, which is how the company missed it for years.
One Loan, Two Entities
The intercompany loan is the hardest row. For the parent, whose functional currency is the dollar, a dollar loan receivable has no currency exposure. For the subsidiary, whose functional currency is the real, the same loan is a dollar liability that must be remeasured each period. If the real weakened 10 percent, from 5.45 to about 6.00 per dollar, the loan would rise from 98.1 million reais to about 107.9 million, a remeasurement loss of about 9.81 million reais in the subsidiary's income statement. Consolidated, that loss does not vanish: it appears in earnings while the matching effect sits in translation. Multinational finance texts treat intercompany balances as a frequent source of unexpected reported losses (Eiteman et al., 2016).
Farm Demand That Offsets
Row 7 matters because it moves against Row 2. When the real falls, the subsidiary's equity shrinks once restated in dollars, but the same move raises Brazilian farmers' real-denominated income from exported soybeans and corn, which tends to raise dryer orders. The subsidiary's cash flows in reais rise when the real weakens, partly offsetting the translation loss. Research on US multinationals finds that exposure measured from stock returns is often smaller than balance sheet figures suggest, because operating effects offset accounting ones (Jorion, 1990).
The German Competitor
Row 6 is economic because the company has no contract with the competitor. If the euro weakens, the competitor can cut its dollar and Australian dollar prices without losing margin, and the company loses orders or margin in both markets. No forward can remove that risk; the response is sourcing, cost and pricing strategy.
Labels Mapped to Responses
1. Transaction: forwards, options on committed amounts, natural offsets.
2. Translation: reporting and monitoring; hedging only where a covenant or contract depends on the dollar figure.
3. Economic: operating responses such as sourcing and pricing, with options for the forecast portion that is reasonably certain.
4. Split items: hedge at the entity that bears the remeasurement.
Checks
Each row's label was tested by asking two questions: is there a contract fixing the amount, and does the effect reach cash? Rows 1 and 4 pass both; Row 2 fails the second; Rows 3, 6 and 7 fail the first.
References
Adler, M., & Dumas, B. (1984). Exposure to currency risk: Definition and measurement. Financial Management, 13(2), 41-50. https://doi.org/10.2307/3665446
Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2016). Multinational business finance (14th ed.). Pearson.
Jorion, P. (1990). The exchange-rate exposure of U.S. multinationals. The Journal of Business, 63(3), 331-345. https://doi.org/10.1086/296510
What the GF584 Unit 2 assignment asks for
Unit 2 of GF584 asks you to classify a company's exposures and explain what each label means for action. Define transaction, translation and economic exposure briefly, framed by what moves and when. Build a grid of the items supplied, with amount, currency, label, reason and response. Give each borderline item a paragraph weighing the labels it could take, especially anticipated sales, contracts invoiced in one currency and priced in another, and intercompany balances that affect two entities differently. Identify economic exposures that offset translation ones. Map each label to its typical response. Close with a test a reader could apply to new items, such as whether a contract fixes the amount and whether the effect reaches cash. Cite the readings in APA 7.
How the GF 584 Unit 2 example is put together
Definitions keyed to what moves open the sample, citing Adler and Dumas. A seven-row grid follows with amounts, labels and responses, from dealer receivables to Brazilian farm demand. A section argues the Australian price list is economic until orders are booked, and the highlighted sentence ties each label to the tool it permits. The won-indexed motor contract is argued as transaction because its formula is contractual. The intercompany loan is split by entity, with a 9.81-million-real remeasurement loss for the subsidiary, citing Eiteman and colleagues. A section on farm demand explains its offset against translation, citing Jorion. The German competitor is labeled economic, a mapping of labels to responses follows, and a two-question test closes the exercise.
Where the points sit in the GF584 Unit 2 rubric
GF584 classification exercises earn their first points for correct definitions and a complete grid with amounts and labels. The larger share goes to the borderline rows, where graders look for reasoning that weighs two possible labels and lands on one with a clear basis. Recognizing that an intercompany loan creates exposure for one entity but not the other, and that a dollar invoice can carry foreign currency risk, shows depth. Instructors in the MS in Finance program value a link between each label and the response it implies, along with offsets between economic and translation exposure. Adler and Dumas, the multinational finance text and Jorion listed in APA 7 complete the rubric.
GF584 Unit 2 help: mistakes that cost points
Many GF584 Unit 2 exercises classify by invoice currency, so a dollar contract with a foreign price formula is labeled as having no exposure. Others treat a price list or forecast as transaction exposure, which leads to hedging sales that may never happen. Intercompany loans are given one label for the whole group, missing the remeasurement in the subsidiary. Translation is described as a cash loss. Offsets between economic and translation exposure are not mentioned. For any set of items your case supplies, keep the order: definitions, grid, a paragraph for each borderline row, offsets, labels mapped to responses and a test that sorts new items.
Get a GF584 Unit 2 example written to your instructions
Forward the Unit 2 case, any list of positions it gives and the rubric. The custom exercise labels each item, argues the borderline rows in a paragraph apiece and maps every label to the response it implies; turnaround is 24-48h and the first sample is free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF584 Unit 2 questions, answered
Can one item fall into more than one category?
Yes, and saying so often earns credit. A foreign subsidiary's local borrowing can be a transaction exposure for the subsidiary and part of the parent's translation exposure at the same time. Pick the label that governs the response the prompt asks about, then note the second in a sentence. What graders resist is a label chosen without any reason at all.
Is an anticipated sale transaction exposure?
Most texts treat it as operating or economic exposure until a contract fixes the amount and currency, at which point it becomes transaction exposure. Some courses use the term anticipated transaction exposure for the middle ground. Follow your text's vocabulary, but make clear that an amount not yet contracted carries volume risk as well as currency risk.
Why does classification matter if all three involve exchange rates?
Because each calls for a different response. Transaction exposure suits financial hedges sized to known amounts. Translation exposure changes reported equity rather than cash, so many firms monitor it instead. Economic exposure plays out over years through prices and competitors and is usually managed through operating decisions. A wrong label leads straight to the wrong tool.
Where can I find a free GF584 Unit 2 sample paper?
You can read a full GF584 Unit 2 exposure classification exercise here, sorting seven positions for a grain dryer maker, with borderline cases argued, responses mapped and APA 7 references.
Why is the intercompany loan split by entity?
For the dollar-functional parent, a dollar loan receivable carries no currency risk. For the subsidiary, whose currency is the real, the same loan is a dollar debt that must be remeasured, so a 10 percent weaker real costs it 9.81 million reais.