An Australian company with subsidiary operations in a number of international markets has an audit into its financial risk exposures that reveals it has a potential exposure to translation risk.Which of the following statements relates to its translation risk exposure?
A) The company has export contracts written in USD receipts over the next twelve months.
B) Interest repayments on euromarket funding are payable in DEM.
C) Assets and liabilities of its subsidiary companies are denominated in foreign currencies.
D) All of the given answers are correct.

Question

Quizplus · Accepted Answer

Translation risk arises when a company has assets and liabilities denominated in foreign currencies. This means that changes in exchange rates between the reporting date and settlement date could impact the company's financial statements. Options A and B are examples of transaction risk, which is different from translation risk. Option D is incorrect as it includes option A and B, which are incorrect.

An Australian Company with Subsidiary Operations in a Number of International