Translation
exposure is the possibility of change in the net worth of the company due to
fluctuations in home valuation of assets and liabilities denominated in foreign
currency. Translation exposure occurs when an MNC’s overseas subsidiary’s
earnings are translated into domestic currency prior to consolidation with the
parent company’s financial statements. This can reflect in the company’s
consolidated profit and loss account. Companies can adopt any of the following
strategies to manage their translation exposure,
o Adjusting the flow of funds
o Entering into forward contracts
o Netting of exposures.
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