Eliminating foreign exchange translation risk

BACKGROUND: Profit and loss for a company could be mis-represented due to FX translation risk, showing a growth or decline contrary to the 'real picture'. For example, a company in Thailand earns US dollar revenues from its overseas operations but reports its profit and loss in Thai baht (THB). If the baht were to depreciate by 5% against the dollar over a year, its overseas operations would show a 5% growth over and above the real performance purely as a result of FX translation.


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