1.Translation Risk
This is the risk that the organisation will make exchange losses when the accounting results of its foreign branches or subsidiaries are translated into the home currency. Translation losses can result, for example, from restating the book value of a foreign subsidiary's assets at the exchange rate on the statement of financial position date.
Note that this is purely a paper-based exercise - it is the translation not the conversion of real money from one currency to another.
Unless managers believe that the company‘s share price will fall as a result of showing a translation exposure loss in the company’s accounts, translation exposure will not normally be hedged. The company‘s share price, in an efficient market, should only react to exposure that is likely to have an impact on cash flows.
 

2.Transaction Risk
Is the risk of an exchange rate changing between the transaction date and the subsequent settlement date i.e. it is the gain or loss arising on conversion.
This type of risk is primarily associated with imports and exports. If a company exports goods on credit then it has a figure for debtors in its accounts. The amount it will finally receive depends on the foreign exchange movement from the transaction date to the settlement date.
As transaction risk has a potential impact on the cash flows of a company, most companies choose to hedge against such exposure. Measuring and monitoring transaction risk is normally an important component of treasury management.
 

3.Economic Risk
This refers to the effect of exchange rate movements on the international competitiveness of a company and refers to the effect on the present value of longer term cash flows.
For example, a UK company might use raw materials, which are priced in US dollars, but export its products mainly within the EU. A depreciation of sterling against the dollar or an appreciation of sterling against other EU currencies will both erode the competitiveness of the company.
Economic exposure can be difficult to avoid but a favored strategy is to diversify internationally, in terms of sales, location of production facilities, raw materials and financing. Such diversification is likely to significantly reduce the impact of economic exposure relative to a purely domestic company, and provide much greater flexibility to react to real exchange rate changes.