Risk management and control 风险管理和控制

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There are three types of exchange rate risk, including
?Translation risk 折算风险
Where the performance of an overseas subsidiary in home based currency is distorted in consolidated financial statements due to change in exchange rates.
?Economic risk 经济风险
It refers to the variation in the value of the business in long term.
?Transaction risk 交易风险
It refers to the risk of an exchange rate changing between the transaction and the subsequent settlement date.
Reason for exchange rate fluctuated
?PPPT (Purchasing Power Parity Theory) 购买力平衡理论
It involves that the rate of exchange between the two currencies depends on the relative inflation rate within the respective countries. PPPT is based on “the law of one price”
Formula
S1=S0