You’ve heard your professor state that Translation risk and related Translation adjustments are accounting entries and...

You’ve heard your professor state that Translation risk and related Translation adjustments are accounting entries and may not be accorded much significance by some companies even if the dollar impacts are material.

a. What is Translation risk and why might companies look at it differently?

b. Assuming a company is concerned about it what potentially strategy or strategies could you recommend to mitigate the exposure?

My thinking is that the responses may be between 1 and 2 pages

Expert Solution

A. Translation risk is also known as accounting risk and this risk is associated with translation of the various items in the books of subsidiary by the parent company into the domestic currency.

For example, if Apple computers in United State wants to consolidate the books of accounts of its subsidiary in India, into the The United States dollars, so the risk arising on translation of rupees into dollars would be leading to translation risk

company may view this risk differently because various company wants to hedge this risk while various company do not want to hedge this risk that as they believe that this risk is within their intragroup, so they can manage it.

B.translation risk can be hedged through buying of the currency swaps which can be used as a heading tool for fluctuation in both the currencies in order to protect the organisation against recording a major loss by conversion of its subsidiary books of accounts into the domestic companies book so one can take exposure in currency swaps in order to expose himself to mitigate this risk.

jeff jeffy answered 1 year ago

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