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Chapter 5: Q6DQ (page 679)

What is meant by translation exposure in terms of foreign exchange risk?

Short Answer

Expert verified

The translation exposure refers to the accounting exposure.

Step by step solution

01

Definition of Foreign Exchange Risk

Thelosses incurred while doing an international financial transactionbecause of thechanges in the foreign exchange rateare known as foreign exchange risks.

02

Meaning of translation exposure

The translation exposure is also called the accounting exposure in foreign exchange risk. It simply measures the effect of the foreign exchange rate change, which is published on the company's financial statement. It shows the losses that will occur in the value of assets and liabilities due to the changes in the current exchange rate.

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