Discuss with an example each, the various types of currency exposures faced by a firm.
Types of Exposure
Translation Exposure
Translation exposure is also referred to as accounting exposure or balance sheet exposure. The restatement of foreign currency financial statements in terms of a reporting currency is termed translation. The exposure arises from the periodic need to report consolidated worldwide operations of a group in one reporting currency and to give some indication of thefinancial position of that group at those times in that currency.
Translation exposure is measured at the time of translating foreign financial statements for reporting purposes and indicates or exposes the possibility that the foreign currency denominated financial statement elements can change and give rise to further translation gains or losses, depending on the movement that takes place in the currencies concerned after the reporting date. Such translation gains and losses may well reverse in future accounting periods but do not, in themselves, represent realized cash flows unless, and until, the assets and liabilities are settled or
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