Translation Risk

AAA

DEFINITION of 'Translation Risk'

The exchange rate risk associated with companies that deal in foreign currencies or list foreign assets on their balance sheets. The greater the proportion of asset, liability and equity classes denominated in a foreign currency, the greater the translation risk.

INVESTOPEDIA EXPLAINS 'Translation Risk'

This poses a serious threat for companies conducting business in foreign markets. Exchange rates usually change between quarterly financial statements, causing significant variances between the reported figures. Companies attempt to minimize these transaction risks by purchasing currency swaps or hedging through futures contracts.

RELATED TERMS
  1. Cumulative Translation Adjustment ...

    An entry in the comprehensive income section of a translated ...
  2. Principal Exchange Rate Linked ...

    A type of debt security that pays interest semiannually and has ...
  3. Currency

    A generally accepted form of money, including coins and paper ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Currency Swap

    A swap that involves the exchange of principal and interest in ...
  6. Income Statement

    A financial statement that measures a company's financial performance ...
Related Articles
  1. Forex Education

    Corporate Currency Risks Explained

    Transaction, translation and economic risks can affect a company's balance sheet.
  2. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  3. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  4. Forex Education

    Dual And Multiple Exchange Rates 101

    Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
  5. Economics

    Sectors Hit by Sanctions on North Korea

    We look at the sectors most affected by the US sanctions imposed against North Korea.
  6. Stock Analysis

    A New Economic Threat: State-Sponsored Hacking

    State sponsored hacking attempts are becoming a major cause of concern to the US. Here is a list of US sectors most vulnerable to state-sponsored hacking.
  7. Personal Finance

    Asia's Safest (And Not That Costly) Countries

    Even Asia's safest countries are affordable, at least compared to New York City. The bargain is Malaysia, though tourists should avoid certain regions.
  8. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  9. Economics

    Iron Ore Market: Falling Into The Hands Of A Few

    The big iron ore mining companies have embarked on a drive to increase supply, reduce cost, and take market share.
  10. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center