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State and discuss in detail, the country of location for translation exposure. Does the exposure occur...

State and discuss in detail, the country of location for translation exposure. Does the exposure occur in the host country, or in the home country of the MNC where it is headquartered?

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Answer #1

The translation exposure occurs in the host country. The MNC's will always some some portion of their assets, liabilities and equity determined in the foreign currency.

So, due to the exchange rate changes, some portion of the assets, liabilities and equity will change. Thus, the firm will face translation exposure.

Translation exposure is the change in the foreign held asset values due to the changes in the exchange rate due to currency fluctuations.

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