Question

4. Explain how accounting rules (and which ones) affect a multinational corporation’s translation exposure. Should a firm be concerned about translation exposure?

Answer 1

Translation exposure is faced by multinational companies having subsidiaries in different parts of the country, the denomination change in the different country will face a difficulty in preparing the balance sheet. It is a forieng exchange risk.

The accounting policies are different to different countries, according to that balance sheet .

The parent company will prepare a balance sheet according to their currency and the subsidiary will prepare according to their home currency .

Since it does not affect the value of the firm , the profit or loss arising from translation exposure does not affect the stock price, the firms is not much concerned about the translation exposure.