Translation risk can be illustrated by considering a UK company that buys a hotel in the USA for $1.5m and finances the purchase with sterling debt. At the prevailing exchange rate of $1.737/£, the sterling value of the debt is £863,558. A year later, the hotel is still valued at $1.5m but the exchange rate now stands at $1.796/£. The sterling value of the debt used to finance the hotel will be the same (£863,558), but the value of the hotel, translated into sterling for consolidation purposes, has fallen to £835,189.