Question

Translation exposure a. Is the potential gain or loss in near term cash flows caused by...

Translation exposure

a.

Is the potential gain or loss in near term cash flows caused by change in exchange rate.

b.

Is the potential gain or loss in long term cash flows caused by change in exchange rate.

c.

Has no influence on cash flow

d.

Has influence on cash flow
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Homework Answers

Answer #1

The correct answer is C.

Translation exposure has no influence on cash flow.

When a company has a reporting requirement to submit its financials in foreign currency its assets and liabilities are effected by exchange rate movements, this risk is known as translation risk or translation exposure.It occurs when parent company consolidates  financials of a foreign subsidiary.

Translation exposure is just a measurement concept and it does not deal with actual cash flow and it has no influence on cash flow.

It is Transaction exposure that impacts the cash flow movement.

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