Such companies typically face three different types of FX exposure: transaction exposure, translation exposure
and economic exposure.
Concentration on cash flow exposures makes economic sense but emphasis on pure translation exposure
Foreign exchange rate fluctuations affect a multinational through translation exposure, transaction exposure, and economic exposure.
Translation exposure influences financial statements during the development of a budget and/or while the budget is being used for control purposes.
The relevance of currency translation exposure on the valuation of single country closed end funds (SCCEFs) is examined, using net asset values (NAVs) and market prices of these funds--the two prices closed end funds have.
However, when it comes to translation exposure the juries (academics and practitioners) are still out on its impact in the valuation of corporations.
exists when the financial statements of a foreign subsidiary must be translated into U.S.
influences include: (1) pricing policies being modified to compete with either higher- or lower-priced goods that are not produced in the same country, usually price-sensitive goods such as consumer electronic items, table wines, and textiles; (2) positive or negative changes in sales volume resulting from lower- or higher-priced competing goods and services either in a domestic or foreign market; and (3) deviations from standard input efficiencies because of alternate domestic or foreign suppliers who become more price competitive as a result of changes in the foreign exchange rate.
The company's largest foreign currency translation exposures
remained the same as last year.
This is an important finding as it indicates that most of the firms are using off-balance sheet measures of hedging like using forwards, futures, options and currency swaps to hedge the transaction and translation exposures
. Negative values of regression estimated equity exposures for two firms (HPCL and IGL) are having low statistical significance due to their higher standard errors.
We hedge only transactions we're very certain about and focus on hedging transaction exposures instead of translation exposures
, primarily because we view the latter as long term.