When is a lower exchange rate pass-through associated with greater exchange rate exposure?

We study the relationship between exchange rate pass-through (how exchange rates affect import prices) and exchange rate exposure (how exchange rates affect profits) under flexible prices. We note that the convexity of costs is an important determinant of both pass-through and exposure, and that an increase in the convexity of costs typically reduces both pass-through and exposure. Hence, the correlation between pass-through and exposure should be positive across industries if cost functions differ across industries. This effect can be mitigated by the negative correlation between pass-through and exposure induced by changes in the price elasticity of demand.