This ppt includes Foreign Exchange Exposure - Meaning and Methods

1. Presented by,
Divya H.N
2nd 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

4. 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 “.

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

7. 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.

8. 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.

9. 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.

10. 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.

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

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