An MNC's stock valuation will not be affected by translation exposure if the MNC's consolidated financial statements are prepared according to the accounting rules in FASB 52.

Question

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Translation exposure, or the risk that the value of assets, liabilities, or income will change due to exchange rate movements when they are denominated in a foreign currency, can still affect an MNC's stock valuation under FASB 52 (now ASC 830 under U.S. GAAP). FASB 52 requires companies to translate their foreign subsidiaries' financial statements into the parent company's reporting currency. Changes in exchange rates can therefore affect the reported amounts of assets, liabilities, and income, potentially impacting the company's stock valuation through changes in perceived value or profitability.

An MNC's Stock Valuation Will Not Be Affected by Translation