Can anyone help me?
Definition:
Translation Risk in SS Risk = Tranaction Risk in SS Fixed Income ?
is that correct?
Calculation:
in CFAI p. 298: Rh (hedged) - Rl (local)
in Schweser p. 122: Rl -Rd
confused…
Translation risk is more an accounting term. That affects asset value when it is translated to domestic currency. This is just an accounting valuation rather than actual currency exchange. See Level II accounting.
Transaction risk is uncertainty in terms of cash you receive when you convert cash from one currency to other.
Economic risk is uncertainty in exchange rate itself due to economic/market conditions. Roughly it is covariance of currency with market divided by variance of market.