Translation Risk


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.

BREAKING DOWN '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.

  1. Currency

    Currency is a generally accepted form of money, including coins ...
  2. Swap

    A derivative contract through which two parties exchange financial ...
  3. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  4. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  5. Cumulative Translation Adjustment ...

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

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