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May i ask the difference between economic risk and translation risk?
Thank youEconomic risk is the risk of trading with suppliers/customers in another country, such as the risk of customers not paying which is greater when the customer is in another country.
Translation risk is the fact that when preparing the accounts for a business the value of foreign assets or liabilities will change depending on the exchange rate at the end of the year.
It is the transaction risk that the financial manager is primarily concerned with and all calculation in the exam are on the various ways in which this risk can be reduced.
This is explained in Chapter 18 of our free lectures notes and the free lectures that go with the notes.
(I do not know why you have headed up your post as ‘Chapter 4’. I guess you must be referring to a chapter in a Study Text, but you do not say which one – it is certainly nothing to do with Chapter 4 of our lecture notes 🙂 )
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