Explain FX transaction vs. translation exposure.

A core Corporate Treasury interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

Transaction: committed FX cash flows (AR in USD, AP in GBP) – hedged with forwards/options. Translation: FX impact on consolidating foreign sub financials – hedged with net investment hedges or FX debt matching. Transaction affects cash; translation affects reported equity.

WHAT INTERVIEWERS LISTEN FOR

✓Transaction exposure definition
✓Translation exposure definition
✓Hedging methods for each
✓Cash vs equity impact

COMMON MISTAKES

✗Confusing transaction with translation
✗Ignoring hedging instruments
✗Stating translation affects cash flows

You've seen the model answer. Now get graded on yours.

In the interview you won't have this page — you deliver your version on a clock. Practice this and 1,000+ questions with AI feedback on every answer.

TRY QUICKFIRE →Or train full Corporate Treasury case simulations →