Capital adequacy remains strong and one of the best in the sector, providing an additional buffer against rising credit risks, despite exposure to
translation risk on the Bank's equity investments in foreign subsidiaries.
Observing that QNB's FSR remains somewhat pressured on liquidity (at its current very high level of 'AA-'); CI said while the rising exposure to country risk and foreign exchange
translation risk on overseas subsidiaries and associates is also to some extent a constraint, all are self-funding and therefore "unlikely to exert significant downward pressure" on the FSR, unless the levels of cross-border exposure increase markedly.
One area companies are looking at is
translation risk, which involves the effect of foreign exchange movements on a company's balance sheet as foreign business units' financials are translated into the parent company's functional currency.
Lloyds' Adam says that at the beginning of this year, some new trends were emerging as companies arranged their annual
translation risk hedging: "We've seen companies look at including more optionality in their hedges," he says.
The tools used to teach accounting and finance courses must specifically include devices which show the effects of foreign exchange transaction risk, foreign currency
translation risk, and specific effects to financial statements of currency translations made over different time periods.
Crimson's
translation risk management processes have received official Notified Body endorsement and are patent pending.
It will suffer
translation risk if the euro rises in value against the currencies of its African or Asian markets.
Translation Risk Transaction Risk: Transaction Denominated in a Foreign Currency Export Goods Import Goods Dollar Weakens Gain Loss Dollar Strengthens Loss Gain
Translation Risk: Accounting Records Kept in a Foreign Currency Net Asset Position Net Liability Position Dollar Weakens Gain Loss Dollar Strengthens Loss Gain Exhibit 3 Rates and Formulas for Basic Consolidation Worksheet A B C D Subsidiary 1 Worksheet Uses the in Foreign Translation Rate 2 Current Rate Method# Currency Rate Amount 3 Cash# 5,000,000a C# =+B19b 4 Cash From Loan# 5 Accounts Receivable# 8,000a C# =+B19b 6 Land# 52,000,000a C# =+B19b 7 Invest.
Given that the dollar fell 13% against sterling last year coupled with an expected further 8% fall this year, currency
translation risk will more than likely weigh on investors' minds when looking to invest in blue chip stocks.
Translation risk, reflected in other comprehensive income, was a low priority, as was economic risk.
Translation risk is the risk we incur when we hold assets or liabilities in a foreign currency.
Translation risk can lead to earnings from foreign subsidiaries contributing less to reported dollar earnings.