Translation exposure: Difference between revisions
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Translation exposure refers to foreign exchange or currency risk. It is the risk of adverse effects in a firm’s reported financial statements, or related financial ratios or borrowing covenant compliance, resulting from changes in the rates at which foreign currency-denominated assets and liabilities are translated into the reporting currency. | Translation exposure refers to foreign exchange or currency risk. It is the risk of adverse effects in a firm’s reported financial statements, or related financial ratios or borrowing covenant compliance, resulting from changes in the rates at which foreign currency-denominated assets and liabilities are translated into the reporting currency. | ||
This applies most commonly to the translation of monetary assets and liabilities and to the consolidation of | This applies most commonly to the translation of monetary assets and liabilities and to the consolidation of non-domestic subsidiaries into group financial statements. | ||
If the changes in exchange rates were to reverse, the effects on the related amounts in the financial statements would normally also reverse. | If the changes in exchange rates were to reverse, the effects on the related amounts in the financial statements would normally also reverse. | ||
Revision as of 09:07, 5 August 2015
Translation exposure refers to foreign exchange or currency risk. It is the risk of adverse effects in a firm’s reported financial statements, or related financial ratios or borrowing covenant compliance, resulting from changes in the rates at which foreign currency-denominated assets and liabilities are translated into the reporting currency.
This applies most commonly to the translation of monetary assets and liabilities and to the consolidation of non-domestic subsidiaries into group financial statements. If the changes in exchange rates were to reverse, the effects on the related amounts in the financial statements would normally also reverse.
Also known as translation risk or translational exposure.
See also
- Accounting exposure
- Balance sheet exposure
- Currency risk
- Current/non-current method
- Economic exposure
- Foreign exchange risk
- Income statement exposure
- Transaction exposure
Other links
Treasury essentials: Translation Risk, Will Spinney, The Treasurer, Nov 2013
