Explanation:
Transaction risk is related to exchange rate changes affecting the value of a foreign-currency transaction between the trade date and settlement date. Translation risk arises from translating foreign-currency-denominated financial statement items into the reporting currency for financial reporting. Economic risk is associated with the influence of currency volatility on firm cash flows. Interest rate risk is a concern for bond investors, and it is related to volatility in bond prices relative to movements in interest rate levels.
(Book 3, Module 35.1, LO 35.d)
Ultimate access to all questions.
Question 56
A currency trader is concerned about the potential impact of exchange rate movements on how a foreign firm records revenue transactions on its income statement. Which category of risk is he really concerned about?
A
Transaction risk.
B
Translation risk.
C
Economic risk.
D
Interest rate risk.
No comments yet.