Characteristics of Translation Risk
1.
Reporting in different currency
Translation risk arises due to reporting in different
currency. A company has a subsidiary;
when the results of that subsidiary is incorporated or consolidated with the
parent company, then translation risk arises. In other word it can be said that
it is reporting risk.
2.
No Cash flow implication
This type of risk is not associated with the cash flows and
therefore does not require hedging. However, in some cases matching technique
of hedging may be used to eliminate the risk.
3.
Hedging
This type of risk are normally not hedged due to non
implication of cash flow, however, matching technique of Hedging may be used to
hedge the risk.
