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Hello sir this is a theory question. GN CO whose home currency is dollar has exported products to europe for several years and all european customers pay on credit basis in euros.
It now plan to invest in a European storage, packing and distribution network. The investment will cost €13million and is to be financed by equal amount of debts and equity.
How is that a translation and a transaction risk??
The answer is transaction risk translation and economic risk.
There is transaction risk because money in Euros will be going from and to GN.
There is translation risk because the investment is in Euros and will have to be converted in the $’s in GN’s Statement of Financial Position.