What is translation risk, Financial Management

Assignment Help:

Q. What is Translation risk?

This risk occurs on consolidation of financial statements prior to reporting financial results and for this reason is as well known as accounting exposure. Consider an asset worth €14 million obtained when the exchange rate was €1.4 per $. One year later while financial statements are being prepared the exchange rate has moved to €1.5 per $ and the statement of financial position value of the asset has changed from $10 million to $9.3 million resulting an unrealised (paper) loss of $0.7 million. Translation risk doesn't involve cash flows and so doesn't directly affect shareholder wealth. But investor perception may be affected by the changing values of assets and liabilities and consequently a company may choose to hedge translation risk through for instance matching the currency of assets and liabilities (example a Euro-denominated asset financed by a Euro-denominated loan).


Related Discussions:- What is translation risk

Describe the basic career stages, Q. Describe the basic Career stages? ...

Q. Describe the basic Career stages? The proper way to analyze and discuss career is to look at them as made up of stages. We can identify five career stages that people most p

Determine the net present value, The following information pertains to Fair...

The following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they wi

Explin the triangular arbitrage, What is triangular arbitrage?  What is a c...

What is triangular arbitrage?  What is a condition that will give increase to a triangular arbitrage opportunity? Answer:  Triangular arbitrage is the method of trading out of th

Constructing the binomial interest rate tree, How to calculate the up anh d...

How to calculate the up anh down factor in the binomial interets rate tree

Assignmment, what is logical process modelling? what is physical modelling?...

what is logical process modelling? what is physical modelling?

Exchange rate uncertainty affect firm exchange risk exposure, The exchange ...

The exchange rate uncertainty may not essentially mean that firms face exchange risk exposure. Describe why this may be the case. Answer:  A firm can comprise a natural hedging p

International strategic management, undertake a critical review of the curr...

undertake a critical review of the current academic literature to determine the reasons for benefits of and the costs to companies of cross listing.

Explain present value of a series of cash flows, Q. Explain Present Value o...

Q. Explain Present Value of a Series of Cash Flows? Present Value of a Series of Cash Flows: - In a business circumstances it is very natural that returns received by a firm ar

Dry up of liquidity and increased correlation, Hedge funds are short two ty...

Hedge funds are short two types of funding options. Describe in detail what these options are. Describe why these options become more valuable during a financial crisis. During

What are the objectives of financial management, What are the Objectives of...

What are the Objectives of Financial Management To make wise decisions a clear understanding of the objectives that are sought to be achieved in compulsory. Objectives provide

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd