Company A, based in Canada, reports its financial statements in Canadian Dollars (CAD), but conducts business in the USA in US Dollars (USD). The USD/AD exchange rate was 1.50, meaning 1.5 CAD could be obtained by 1.00 USD, when the company reported its Q1 financial results. However, the exchange rate is now 1.25, when the company reports its Q2 financial results.
Is it an example of transaction risk, economic risk, or translation risk? Explain briefly.

Question

Company A, based in Canada, reports its financial statements in Canadian Dollars (CAD), but conducts business in the USA in US Dollars (USD). The USD/AD exchange rate was 1.50, meaning 1.5 CAD could be obtained by 1.00 USD, when the company reported its Q1 financial results. However, the exchange rate is now 1.25, when the company reports its Q2 financial results.

Is it an example of transaction risk, economic risk, or translation risk? Explain briefly.

Satt Academy · Accepted Answer

Company A, based in Canada, reports its financial statements in Canadian Dollars (CAD), but conducts business in the USA in US Dollars (USD). The USD/AD exchange rate was 1.50, meaning 1.5 CAD could be obtained by 1.00 USD, when the company reported its Q1 financial results. However, the exchange rate is now 1.25, when the company reports its Q2 financial results.

Is it an example of transaction risk, economic risk, or translation risk? Explain briefly.

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