The following describes a translation exposure of exchange rate risk. Your firm has subsidiaries throughout the world. Due to the recent depreciation of the dollar against most foreign currencies, the dollar value of your foreign sales has declined as reflected on the parent's financial statements, even though sales growth is strong.

Question

Quizplus · Accepted Answer

The depreciation of the dollar against most foreign currencies has reduced the dollar value of the firm's foreign sales, even though sales growth is strong. This is because the dollar is now worth less in terms of foreign currencies, so it takes more dollars to purchase the same amount of foreign goods or services.

The Following Describes a Translation Exposure of Exchange Rate Risk