Difference between transaction exposure and translation exposure

This article explains the difference between transaction exposure and translation exposure in international transactions. Transaction exposure refers to the risk of underpricing or overpricing a commodity due to fluctuations in exchange rates. Translation exposure, on the other hand, refers to the risk of fluctuations in the value of assets and liabilities reported in accordance with foreign exchange rates. Both types of risks can be hedged to cover potential losses.

Task 1, Question 5
The terms transaction exposure and translation exposure have different meanings as follows
 A transaction exposure is the risk involved in the international transaction made on use of
different currencies, as the exchange rates on currencies of two countries keeps changing
there is a risk of a commodity sold being under-priced or overpriced due to the changes /
fluctuations in such exchange rates.
 A translation exposure is the risk involved in fluctuations of value of assets, liabilities, etc. of
a company reported in accordance to foreign exchange rates which, can increase the value
of these elements in balance sheet or can reduce the value due to increase in the value of
other currency over domestic currency (Choy, 2018).
These both type of risks are associated to the exchange rate fluctuations.
these can be hedged to cover losses if any that can arise, in hedging the either party to the
transaction takes a forward cover to cover for losses or also have an option of getting a
hedge through money market operations that involve the borrowing rate and investing rate
of different currencies as necessary for hedging.
Task two, Question 4
The past trend of the selected company “Telstra corporation ltd” is as follows
10 years back the stock priced at AUD 3.85 in 2009
5 years back the stock priced at AUD 5.34 in 2014
3 years back the stock price at AUD 5.30 in 2016
1 year back the stock priced at AUD 2.84 in 2018
In addition, the YTD on the date of its initial public offer is AUD 2.77, now it is growing at a price of
AUD 3.53 (Sithole, Chandler, Abeysekera, & Paas, 2017).
Task two, Question 5
Yes, the selected stock is volatile over the period, it increased from AUD 3.85 in 2009 to AUD 5.34 in
2014 and further it is reduced to AUD 2.84 in 2018, ass on the date in 2019 it is priced at a range of
AUD 3.53.
There is a change in the price over period and such change is not constant as it directed towards
growth in some period and it was in losses in the other period.
52 week high of this stock in the ASX is AUD 3.64 whereas 52-week low of this stock in the ASX is
AUD 2.60
in case of considering the movement of stocks in the current trading day, this stock as on today is
trading at AUD 3.53 with the opening of AUD 3.63 getting a high of AUD 3.64 and today’s low value
of the stock is AUD 3.52 (Trieu, 2017).

The volatility of the stock over the trading day was 2.56% where compared to the today’s share
value with the previous share value over last 10 years then the volatility of stock is more than 40% in
value.
While comparing the stock value YTD, it priced at AUD 2.77 when it was in IPO and now it priced at
an average of AUD 3.53, there is no significant change when we see based on the shareholders point
of view (Alexander, 2016).
References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4),
411-431.
Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview
Analysis. Ecological Economics, 3(1), 145.
doi:https://doi.org/10.1016/j.ecolecon.2017.08.005
Sithole, S., Chandler, P., Abeysekera, I., & Paas, F. (2017). Benefits of guided self-management of
attention on learning accounting. Journal of Educational Psychology, 109(2), 220. Retrieved
from http://psycnet.apa.org/buy/2016-21263-001
Trieu, V. (2017). Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, 93(1), 111-124.