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“Translation risk does not directly affect the shareholders wealth”
I cannot understand how this statement is true because shareholders wealth is dependent on profit ,earnings and dividends etc.The profit figure is affected when the subsidiary assets and liabilities are translated into the domestic currency.So it in turns affects the shareholders wealth.
Translation risk does not affect the cash flows but again how real cash flows affects the shareholders wealth?The statement says that it does not directly affect their wealth, which is true.
You will know from the lectures that the shareholders wealth is determined by the value of their shares, that the value of their shares depends on the expected dividends, and that the expected dividends depend on the companies expected cash availability (and their retention policy).
Translating values on the SOFP has no cash affect at all and therefore does not in theory affect shareholders wealth.@johnmoffat said:
The statement says that it does not directly affect their wealth, which is true.You will know from the lectures that the shareholders wealth is determined by the value of their shares, that the value of their shares depends on the expected dividends, and that the expected dividends depend on the companies expected cash availability (and their retention policy).
Translating values on the SOFP has no cash affect at all and therefore does not in theory affect shareholders wealth.So that means transaction risk affects the shareholders wealth?As transaction risk affects the cash flows.
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