It’s mission-critical for companies to protect their margins, revenues, and expenses from unnecessary volatility. A lot of the time, volatility comes from currency changes — or, foreign exchange risk.
Most treasury professionals are comfortable gathering and netting down same currency exposures that go in opposite directions.
Translation and transaction accounting are often confused for one another — but the difference between them is important. How can you tell them apart?
If your company transacts internationally, you know you need to use exchange rates to not only convert foreign currency transactions from the local currency into USD but also to translate foreign currency financial statements.
Cash flow risk is defined as the variability of functional cash flows for an anticipated transaction or on an existing asset/liability due to a particular risk (in this case, foreign currency risk).