A firm faces translation exposure when the financial benefits and costs of an international transaction can be affected by exchange rate movements that occur after the firm is legally obligated to complete the transaction.

Question

Quizplus · Accepted Answer

Translation exposure refers to the impact of currency exchange rate changes on the reported financial statements of a company, particularly those with operations in multiple countries. It does not relate to the financial benefits and costs of transactions being affected after a firm is legally obligated to complete them; that description more closely aligns with transaction exposure.

A Firm Faces Translation Exposure When the Financial Benefits and Costs