Translation exposure arises when there is a need to convert LC’s to the home currencies; this is done for reporting and consolidating financial statements. When managing your translation exposure, managers can use three different methods. The first method is adjusting fund flows, which alter the amounts or the currencies of the planned cash flows of the parent, or its subsidiaries to reduce the firm’s local currency accounting exposure. Another method is to enter into forward contracts, which reduces a firm’s translation exposure by creating an offsetting asset or liability in foreign currency. Finally, exposure netting, this is when you offset exposures in one currency with exposures in the same or another currency. Further, gains and losses on the two currency positions will offset each other.   The basic hedging strategy involves increasing hard currency assets and decreasing soft currency assets. While at the same time, you want to decrease hard currency liabilities and increase soft currency liabilities. There are several ways to increase soft currency levels, a few ways mentioned in class were to reduce the level of cash, tighten credit terms to decrease accounts receivables, and most importantly increase LC borrowing, as well as delay the accounts payables. When hedging, this is the ultimate goal, however typically is not the case. Much practice and experience is needed when implementing such strategies.   On the down side, these hedging activities are not automatically valuable. If or when the market recognizes that a currency may depreciate or appreciate, it will affect the cost of various hedging methods. The only way to reduce cost is if a firm’s prediction varies from the markets. Further, to be successful in a reduction of cost, the firm must be superior to the market. The purpose of value hedging would be to simply protect a firm from any unexpected currency fluctuations.