Foreign Exchange Exposure - Meaning and Methods

This ppt includes Foreign Exchange Exposure - Meaning and Methods

1. Presented by, Divya H.N 2 nd M.Com G.F.G.C.W Holenarsipura . Foreign Exchange Exposure Translation Under the guidance of Sundar B. N. Asst. Prof. & Course Co-ordinator GFGCW, PG Studies in Commerce Holenarasipura

2. Topic:- Foreign Exchange Exposure Translation. Introduction Meaning Methods

3. Introduction: Translation Exposure (also known as translation risk) is the risk that a company’s Equities,Assets, Liabilities or Income will change in value as a result of Exchange rate changes.This Occurs when a firm denominates a portion of it’s Equities,Assets, liabilities or Income in a Foreign currency.It is also known as “ Accounting Exposure “.

4. Meaning :- Translation Exposure is the risk of having changes in foreign exchange rates trigger losses on business Transactions or Balance sheet holdings.

5. Methods Of Translation Exposure: 1.Current / Non-current Method :- * Under this method all current assets and current liabilities are translated at the current exchange rate. * All Non-current assets and all Non-current liabilities are translated at historical exchange rates.

6. 2.Monetary / Non-monetary Method :- * Under this method the assets and liabilities are classified as Monetary and Non monetary. * Items that represent a clam to receive or an obligation to pay a fixed amount of foreign currency.Such as cash,account receivables, accounts payables,etc..fall under the monetary group. * On the other hand,the physical assets and liabilities,such as fixed assets, Inventory and Long-term investment are treated as Non-monetary items.

7. 3.Temporal Method :- * As per this method,the items that are stated at Historical cost are translated at historical exchange rate. For example :- Fixed assets are translated at historical exchange rate [i.e.,the rate of exchange ruling at the date on which the amount was recoded in Balance sheet.

8. 4.Current Rate Method :- Under the Current rate method all the items of the balance sheet and income statement is translated at the current spot rate of exchange.

9. Conclusion :- Translation exposure is a kind of accounting risk that arises due to fluctuations in currency exchange rates.

10. *https;//corporate finance institute.com/resource/knowledge/accounting/translation-exposure/. Reference :-