Should a company hedge translation (balance-sheet) exposure, and how does that differ from hedging economic exposure?

Translation exposure is the accounting effect of consolidating foreign-currency net assets — it hits the translation reserve in equity (OCI), not cash, and reverses on consolidation. Many firms choose not to hedge it because it's non-cash and hedging it creates real cash flows (and costs) to offset a paper movement; others partially hedge with a net-investment hedge (e.g., foreign-currency debt) to protect reported leverage and equity, especially where covenants are sensitive. Economic exposure is the deeper, cash-relevant impact of currency moves on future competitiveness and cash flows — harder to quantify, addressed through operational hedges (sourcing/pricing in local currency, plant location) more than financial instruments. The policy answer: prioritize hedging cash (transaction and economic) exposure; hedge translation only where it threatens covenants or reported metrics that matter.