Harris International has operations in three countries. When the accountants value the inventory for ﬁnancial statement purposes, they often ﬁnd that the value of the ﬁxed assets in dollars has
Changed even though the actual assets have not changed since the prior accounting period. This is
An example of ______ exposure to exchange rate risk.

Question

Quizplus · Accepted Answer

This situation is an example of translation exposure, which is the risk that a firm's consolidated financial statements will be affected by fluctuations in exchange rates. In this case, the value of fixed assets in different countries is translated into a common currency for financial statement purposes, which can result in changes in the reported value of assets due to exchange rate fluctuations. This is a long-term exposure, as it affects the firm's consolidated financial statements over time. It is not a financial exposure, as it does not relate to the firm's financial transactions or investments. It is also not a short-run or transaction exposure, as it does not relate to specific business transactions or activities.

Harris International Has Operations in Three Countries