If management expects a foreign currency to depreciate, it could minimize translation exposure by increasing net exposed assets.

Question

Quizplus · Accepted Answer

If management expects a foreign currency to depreciate, it should actually minimize translation exposure by decreasing net exposed assets, not increasing them. This is because a depreciation in the foreign currency would lead to lower reported values of assets and liabilities denominated in that currency, and a smaller net exposure would mean a smaller impact on the company's financial statements.

If Management Expects a Foreign Currency to Depreciate, It Could