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Why is translation exposure and transaction risk important to the financial manger? How does it affect her work? I know that she will need to devise hedging strategies for the transaction risk and choose an appropriate hedge and that’s why it is important but could you suggest some more ideas please for transaction and translation exposure?
Translation exposure matters to the financial manager because (for example) if money is going to be received from a customer in a foreign currency, then the receipt in the home currency is uncertain because of possible future changes in the exchange rate.
Translation exposure is much less of a concern to the financial manager because any ‘gains’ or ‘losses’ due to movements in the exchange rate is only a ‘book’ gain or loss rather than an actual monetary effect.You really should watch the lectures where this is explained, along with the different methods available for hedging.
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