Which of the following statementis) is/are true? (Select the correct answer from the options below the statements) (1) Translation risk is an accounting issue, which is of little consequence to the investment decision except for when there are high borrowing levels and the providers of debt have imposed restrictions on gearing levels (2) Transaction risk is the risk of adverse exchange-rate movements between the date of a transaction and the date of settlement (3) Economic risk is the risk of actions by managers and reactions to sharcholders that affect dividend payments (1) and (2) (1) only (1) and (3) (1), (2) and (3)

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Which of the following statementis) is/are true? (Select the correct answer from the options below the statements) (1) Translation risk is an accounting issue, which is of little consequence to the investment decision except for when there are high borrowing levels and the providers of debt have imposed restrictions on gearing levels (2) Transaction risk is the risk of adverse exchange-rate movements between the date of a transaction and the date of settlement (3) Economic risk is the risk of actions by managers and reactions to sharcholders that affect dividend payments (1) and (2) (1) only (1) and (3) (1), (2) and (3)

Answer 1

## Step1:To answer the problem, it is essential to have a clear understanding of the concepts of translation risk, transaction risk, and economic risk in financial terms. ## Step2:Acceleration risk or translation risk refers to the potential for a company's financial statements to be affected by changing exchange rates. When a user translates the value of the company's foreign subsidiaries or assets back into the home currency, there is a potential risk due to the impact of exchange rate fluctuations. So, the first statement about translation risk isn't entirely accurate. Although it is an accounting issue, it holds meaning for an investment decision in other situations too. For instance, currency fluctuations can have direct implications on investment returns for direct investment or investments in foreign stocks.## Step3:Transaction risk refers to possible losses companies may incur due to fluctuations in exchange rates between the beginning and final stages of transactions concerning a different currency than the domestic one. Hence, the second statement sets correctly.## Step4:Economic risk is generally associated with the adverse financial effects due to stages in the business cycle or ambiguous and dramatic political developments, which may affect strategic long-term projects, investment decisions, etc. in sectors like Transit or Socio-economic stability, rather than casual activities due to the Managers or stakeholders' decisions that underpersonalise dividend Payments. So, the third statement does not carve out the concept of economic risk correctly.

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