in the same currency will experience efficiencies and a reduction in risk by calculating the net of the inflows and outflows, and using foreign-currency account balances that will pay in part for some or all of the exposure. Translation hedging Translation exposure is largely dependent on the translation methods required by accounting standards of the home country. For example, the United States Federal Accounting Standards Board specifies when and where to use certain methods. Firms can manage translation exposure by performing a balance sheet hedge, since translation exposure arises from discrepancies between net assets and net liabilities solely from exchange rate differences. Following this logic, a firm could acquire an appropriate amount of exposed assets or liabilities to balance any outstanding discrepancy. Foreign exchange derivatives may also be used to hedge against translation exposure. A common technique to hedge translation risk is called balance-sheet hedging, which involves speculating on the forward market in hopes that a cash profit will be realized to offset a non-cash loss from translation. This requires an equal amount of exposed foreign currency assets and liabilities on the firm's consolidated balance sheet. If this is achieved for each foreign currency, the net translation exposure will be zero. A change in the exchange rates will change the value of exposed liabilities to an equal degree but opposite to the change in the value of exposed assets. Companies can also attempt to hedge translation risk by purchasing currency swaps or futures contracts. Companies can also request clients to pay in the company's domestic currency, whereby the risk is transferred to the client. Strategies other than financial hedging Firms may adopt strategies other than financial hedging for managing their economic or operating exposure, by carefully selecting production sites with a mind for lowering costs, using a policy of flexible sourcing in its supply chain management, diversifying its export market across a greater number of countries, or by implementing strong research and development activities and differentiating its products in pursuit of less foreign-exchange risk exposure. By putting more effort into researching alternative methods for production and development, it is possible that a firm may discover more ways to produce their outputs locally rather than relying on export sources that would expose them to the foreign exchange risk. By paying attention to currency fluctuations around the world, firms can advantageously relocate their production to other countries. For this strategy to be