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

Capitalization ratios, Capitalization ratios are used for determining the e...

Capitalization ratios are used for determining the extent to which the corporation is trading on its equity, and the resulting financial leverage. These ratios

., Identify and explain the key stages in the capital investment decision-m...

Identify and explain the key stages in the capital investment decision-making process and the role of investment appraisal in this process.

What is the usual pattern of cash flows, What is the usual pattern of cash ...

What is the usual pattern of cash flows for a share of preferred stock? How does the market determine the value of a share of preferred stock, given these promised cash flows?

Explain the significance of the term additional funds needed, Explain the s...

Explain the significance of the term additional funds needed . When the pro forma balance sheet is finished, total liabilities and total assets and equity will rarely match.

How will you conclude the cost of capital, Q. How will you conclude the cos...

Q. How will you conclude the cost of capital from different sources? Ans. Implication of Cost of Capital: - Cost of capital of a firm is the least rate of return expected by it

Pull strategy, Pull Strategy Pull strategy define a marketing appr...

Pull Strategy Pull strategy define a marketing approach in which a manufacturer promotes a product directly to consumers in the hopes that the consumers will then request

Working capital cycle for a trade, Working capital cycle for a trade ...

Working capital cycle for a trade Inventories days (time inventories are held before being sold)   Plus   Trade receivables days (how long

Product pricing through simulation, Product Pricing Through Simulation ...

Product Pricing Through Simulation Having studied a simpler problem, let us revert to our earlier illustration regarding fixing a price. Let us suppose that we want to simul

Determine finance growth and evolution, a) Debentures are a source of exter...

a) Debentures are a source of external long term (loan) finance for which interest is paid to the debenture holder. Debenture holders do not usually have voting or ownership rights

Factors affecting choice of a maximum cash balance amount, Explain the fact...

Explain the factors affecting the choice of a maximum cash balance amount. The maximum cash balance amount is regulated by available investment opportunities, the expected payb

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