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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Transaction exposure

What is the difference between transaction exposure and translation exposure?

ONE OF 80 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Transaction exposure is the cash a business gains or loses when an amount it has agreed in a foreign currency — an invoice, a purchase order, a loan repayment — is settled at a different exchange rate from the one it was priced at. Translation exposure is the change in the home-currency value of foreign assets and earnings when they are restated in the group accounts; no cash moves. A lender's interest is in the first, because it reaches the cash that services debt, and in the mismatch underneath it: revenue in one currency, costs in another, with the margin carrying the difference.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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