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Inflation, Foreign Exchange Rate and Translation Exposure
[Inflace, devizový kurs a translační devizová expozice (teoretické aspekty)]

Author

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  • Jaroslava Durčáková

Abstract

This article deals with theoretical aspects of translation exposure in connection with inflation and foreign exchange rate. The aim of the paper is to point out - using the hypothetical situation of a subsidiary whose currency is the currency of hyperinflation economy and who translates its balance sheet into currency of non-hyperinflation economy - that the closing rate method of translation can present the realistic view of the economic (market) situation of the firm only in that case when all compared items are revalued before translation by closing rate. The parent firm can reduce the translation exposure risk by hedging. Since it can use the expected items of the future balance sheet, hedging might be a problem.

Suggested Citation

  • Jaroslava Durčáková, 2008. "Inflation, Foreign Exchange Rate and Translation Exposure [Inflace, devizový kurs a translační devizová expozice (teoretické aspekty)]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2008(1), pages 40-55.
    • Handle: RePEc:prg:jnlcfu:v:2008:y:2008:i:1:id:256:p:40-55
    DOI: 10.18267/j.cfuc.256
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    References listed on IDEAS

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    1. Peter J. Maloney, 1990. "Managing Currency Exposure: The Case Of Western Mining," Journal of Applied Corporate Finance, Morgan Stanley, vol. 2(4), pages 29-34, January.
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    More about this item

    Keywords

    Translation Exposure; Inflation; Foreign Exchange Rate; Translační devizová expozice; Inflace; Devizový kurs;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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