Abstract
Exchange rates used in translating the financial statements of foreign subsidiaries may depreciate or appreciate substantially over a given accounting period. Short of net zero exposures on a currency-by-currency basis, such fluctuations in exchange rates will generally result in considerable exchange losses (gains) that will clearly play havoc with what might otherwise be a smooth income stream from foreign operations. Translation losses will also reduce shareholders’ equity and therefore impact the debt-equity ratio of the firm. As the leverage ratio deteriorates, the firm will find its cost of debt financing increasing and/or its access to financial markets restricted.
If a man will begin with certainties, he will end with doubts, but if he will be content to begin with doubts, he shall end in certainties.
Francis Bacon
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© 1996 Kluwer Academic Publishers
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Jacque, L.L. (1996). Hedging Translation Exposure. In: Management and Control of Foreign Exchange Risk. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-1806-1_10
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DOI: https://doi.org/10.1007/978-94-009-1806-1_10
Publisher Name: Springer, Dordrecht
Print ISBN: 978-0-7923-8088-7
Online ISBN: 978-94-009-1806-1
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