Translation Risk

While backpacking through Europe, you meet an attractive local in an idyllic Italian town. You hire someone from an espresso shop down the street to translate for you while you spout romantic poetry.

It turns out that the translator just took your money and spent the time flirting with your crush in Italian. The two of them got married last year and are expecting their first child. Translation risk in action.

There's also a financial version. It involves a similar problem that comes up when dealing in a foreign market. However, this translation risk relates to companies that hold foreign assets or conduct deals using foreign currency.

You run a U.S.-based oil drilling company. You own a few rigs in Nigeria. The assets are valued in Nigerian naira, which means you have to translate the value into U.S. dollars to list it on your balance sheet. However, that setup opens you up to trouble every time the Nigerian currency suffers one of its wild fluctuations. Your balance sheet could get impacted. Translation risk.