Translation exposure and Valuation inputs: Difference between pages

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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. 
The assumptions that market participants use when valuing an asset or liability, including assumptions about risk, such as the following:


This applies most commonly to the translation of monetary assets and liabilities and to the consolidation of overseas subsidiaries into group financial statements.
#The risk inherent in a particular valuation technique used to measure fair value (such as a pricing model).
If the changes in exchange rates were to reverse, the effects on the related amounts in the financial statements would normally also reverse.
#The risk inherent in the inputs to the valuation technique.  


Also known as translation risk or translational exposure.


Valuation inputs may be observable or unobservable.


== See also ==
* [[Accounting exposure]]
* [[Balance sheet exposure]]
* [[Currency risk]]
* [[Current/non-current method]]
* [[Economic exposure]]
* [[Foreign exchange risk]]
* [[Income statement exposure]]
* [[Transaction exposure]]


==See also==
*[[Fair value]]
*[[IFRS 13]]
*[[Observable valuation inputs]]
*[[Unobservable valuation inputs]]


===Other links===
[[Category:Accounting,_tax_and_regulation]]
[http://www.treasurers.org/node/9528 Treasury essentials: Translation Risk, Will Spinney, The Treasurer, Nov 2013]
 
[[Category:Manage_risks]]

Revision as of 20:12, 27 June 2022

The assumptions that market participants use when valuing an asset or liability, including assumptions about risk, such as the following:

  1. The risk inherent in a particular valuation technique used to measure fair value (such as a pricing model).
  2. The risk inherent in the inputs to the valuation technique.


Valuation inputs may be observable or unobservable.


See also

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