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)
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.
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