Translation risk hits corporate earnings
Corporate earnings dented by unhedged risk and low-volatility environment
The recent bout of low volatility across major currencies, sterling strength and emerging market (EM) currency weakness has hit corporate earnings in the first quarter to the tune of millions of pounds, as corporates struggle to hedge translation risks.
The foreign exchange charges that caught corporates on the backfoot are due to a largely unhedged exposure called translation risk, which requires corporates to convert earnings back into the firm's functional unit. Corporates don't normally
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