Which type of exchange rate risk can alter demand for a company’s products or services?

Economic exposure relates to the potential impact of exchange rate fluctuations on a company's future cash flows and overall market value. It can affect demand for a company's products or services because changes in exchange rates can make a company's goods more or less competitive in international markets.

For instance, if a company's home currency strengthens considerably against foreign currencies, its products may become more expensive for foreign buyers, potentially leading to a decrease in demand. Conversely, if the home currency weakens, the company's products may become cheaper for international customers, possibly increasing demand. This type of exposure looks at long-term effects and strategic positioning in the market rather than just immediate transactions or accounting adjustments.

While transaction exposure specifically pertains to the risk associated with settled transactions in foreign currencies, and translation exposure deals with the impact of exchange rate changes on the reported financial statements of a company, neither captures the broader market implications on demand that economic exposure does. Legal exposure, on the other hand, refers to risks stemming from legal actions and regulations, which do not directly pertain to exchange rate changes or their impact on demand.