Transaction and Traselation Exposure Essay Example | Topics and Well Written Essays - 500 words

Transaction and Traselation Exposure - Essay Examples made by some(prenominal) the Indian and Australian subsidiary gave back less dollars on the combined income statement i.e., translation exposure, even with no meshing remitted back to the parent community (Homaifar, 2004).Jeeves (UK) plcs combined earnings allow be reduced by the translation effect brought as a result of depreciation of the British impound against the other international currencies. Because of the fact that foreign earnings are normally translated at the standard exchange rate over the financial year would at last specify low value of foreign currencies yielding low level of combined income (Homaifar, 2004).Existence of purchasing power parity (PPP) means higher US inflation than that of Britain. Demand for Jeeves (UK) plc products may not be affected due to price inflation from US, Canada and other euro zones aimed at offsetting the British consumer capability to obtain cheaper dollars. The British consume rs purchasing ability on Jeeves items of trade versus other country products are not affected by rise and fall in the pound value. The economic exposure of Jeeves, a heavy exporter to the euro zone would decline since no need currency exchange is vital. Likewise, translational exposure of Jeeves would decline since Britains economic statements will no longer need translation. (Homaifar, 2004).Multinational companies have the obligation of ensuring that they are capable of reducing risks associated with foreign exchange. This can be attri preciselyed to the undisputable fact that their earnings are reliant on the foreign exchange rates. Because foreign exchange rates can fluctuate either up or down which would mean a constructive or destructive effect on the Companys real profit. This calls for knowledge on minimizing risks associated with the exchange rates if they are to maximise on their profits and increase companys equity (Homaifar, 2004).Certain strategies employed by a compa ny to minimize foreign exchange risks include, but not restricted