Exchange rate exposure

It is widely believed that changes in exchange rates have important implications for financial decision-making and for the profitability of firms. One of the central motivations for the creation of the euro was to eliminate exchange rate risk to enable European firms to operate free from the uncertainties of changes in relative prices
resulting from exchange rate movements. At the macro level, there is evidence that the creation of such currency unions results in a dramatic increase in bilateral trade (Frankel and Rose, 2002).