Translation Risk
Categories: Tech
While backpacking through Europe, you meet an attractive local in an idyllic Italian town. You hire someone from an espresso shop down the street to translate for you while you spout romantic poetry.
It turns out that the translator just took your money and spent the time flirting with your crush in Italian. The two of them got married last year and are expecting their first child. Translation risk in action.
There's also a financial version. It involves a similar problem that comes up when dealing in a foreign market. However, this translation risk relates to companies that hold foreign assets or conduct deals using foreign currency.
You run a U.S.-based oil drilling company. You own a few rigs in Nigeria. The assets are valued in Nigerian naira, which means you have to translate the value into U.S. dollars to list it on your balance sheet. However, that setup opens you up to trouble every time the Nigerian currency suffers one of its wild fluctuations. Your balance sheet could get impacted. Translation risk.
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Finance: What is Counterparty Risk?9 Views
Finance a la shmoop what is counterparty risk?
alright here's you the party and here's the guy you're contracting with to sell [Woman and man stood side by side]
18 tons of bricks or buy a line of credit for your flower shop or sell a
futures contract with the right to buy oil at 80 bucks a barrel for the next [Person signs contract]
two years so you're the party and he's the counterparty and the yin and yang of
the party and here's the risk yeah well the counterparty risk is just
that the person you contracted with doesn't live up to their end of the
bargain you pay them good money you sign a good contract all lawyered up and [Stack of money and contract appears]
stuff and then they split like totally split disappeared sea men choose the
bottom of the ocean maybe they went to Bora Bora
maybe they got facial surgery in the Philippines you know they do that now [George Clooney in a surgical bed]
well when that happens you will probably feel like crying and you should its your
counterparty you can cry if you want to come on that was a good reference people [Man singing]