Translation risk: Difference between revisions
imported>Doug Williamson (Expand to become main / preferred version.) |
imported>Doug Williamson m (Categorise.) |
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''Foreign exchange risk'' | ''Foreign exchange risk'' | ||
Translation | 1. | ||
Translation risk relates to foreign currencies. | |||
It is the risk of changes 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, liabilities, income or costs 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. | 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. | ||
2. | |||
The risks in 1. above, together with any secondary adverse effects, resulting from the changes described above. | |||
Potential secondary adverse effects may include breach of financial ratios in loan covenants, and consequential costs. | |||
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* [[Currency risk]] | * [[Currency risk]] | ||
* [[Current/non-current method]] | * [[Current/non-current method]] | ||
* [[Economic | * [[Economic risk]] | ||
* [[Financial covenant]] | |||
* [[Foreign exchange risk]] | * [[Foreign exchange risk]] | ||
* [[Income statement exposure]] | * [[Income statement exposure]] | ||
* [[Transaction | * [[Pre-transaction risk]] | ||
* [[Transaction risk]] | |||
===Other links=== | ===Other links=== | ||
[http://www.treasurers.org/node/9528 Treasury essentials: Translation Risk, Will Spinney, The Treasurer, Nov 2013] | [http://www.treasurers.org/node/9528 Treasury essentials: Translation Risk, Will Spinney, The Treasurer, Nov 2013] | ||
[[Category:Financial_risk_management]] | |||
Latest revision as of 16:39, 28 February 2018
Foreign exchange risk
1.
Translation risk relates to foreign currencies.
It is the risk of changes 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, liabilities, income or costs 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.
2.
The risks in 1. above, together with any secondary adverse effects, resulting from the changes described above.
Potential secondary adverse effects may include breach of financial ratios in loan covenants, and consequential costs.
Also known as translation exposure, translational risk or translational exposure.
See also
- Accounting exposure
- Balance sheet exposure
- Currency risk
- Current/non-current method
- Economic risk
- Financial covenant
- Foreign exchange risk
- Income statement exposure
- Pre-transaction risk
- Transaction risk
Other links
Treasury essentials: Translation Risk, Will Spinney, The Treasurer, Nov 2013
