translation loss

Translation Loss

The loss that occurs when one exchanges one floating currency for another and then trades back into the first currency after it has become stronger. For example, suppose a person has 1,000,000 U.S. dollars and exchanges them for 500,000 British pounds; this means the exchange rate is two dollars per pound. Later, if that person still has those 500,000 pounds when the dollar has risen (quite dramatically) to one dollar per pound and exchanges them back to dollars, he/she has $500,000 instead of $1 million. In this case, the translation loss is $500,000.

translation loss

The loss that results when a firm translates amounts stated in one currency into terms of another currency. The loss is incurred when the firm translates from a currency that has declined in value relative to the currency into which the amounts are being converted.