Translation exposure refers to the impact of currency movements on consolidated financial statements when converting foreign subsidiaries' results to the parent currency.

• A. The risk of currency depreciation affecting export prices
• B. The impact of currency movements on consolidated financial statements when converting foreign subsidiaries' results to the parent currency
• C. The risk from actual cash flows in foreign currencies
• D. The risk of tax rates changing with currency

Answer: (B)

Translation exposure arises when the financial statements of foreign subsidiaries are consolidated into the parent currency. As exchange rates move, the assets, liabilities, revenues, and expenses of those subsidiaries must be translated into the parent currency, causing reported figures to change even if actual cash flows stay the same. This non-cash effect often shows up as translation adjustments in equity (in many frameworks, within other comprehensive income), affecting the consolidated balance sheet and the reported results of foreign operations. It is distinct from transaction exposure, which concerns actual cash flows in foreign currencies, and from risks tied to tax rates or export prices. So the description precisely captures how currency movements impact consolidated financial statements during the translation process.