Translation risk definition
/What is Translation Risk?
Translation risk is the risk of incurring losses when there are adverse changes in exchange rates. Translation risk can arise when a business must pay a supplier in another currency, receive payment from a customer that is denominated in a different currency, or hold assets that are denominated in a foreign currency. Translation risk can be a major concern for organizations with extensive international operations. A firm that wants to mitigate its translation risk can engage in hedging transactions. Conversely, a firm that experiences a small amount of translation risk may elect to not manage the risk, resulting in modest gains or losses from its foreign currency transactions.