Exchange rate transaction effects

Unlike translation effects, transaction effects show actual changes in the profits produced by a company in terms of its working currencies.

Transaction effects result from the exposure a company has to foreign currency if it when it has debtors or creditors in a foreign currency. Transaction effects can affect a company that does not have operations that operate in a different currency if it either buys or sells in a currency other than its reporting currency.

Companies commonly use options, futures and other derivatives to hedge transaction risks.

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