FAR 6.3 - Derivatives & Hedge Accounting Flashcards

1
Q

Financial instrument that derives its value from the value of some other instrument and has all three of the following characteristics:
One or more underlying and notional amounts
No initial net investment is required
Can be settled for cash or by delivery of an asset

A

Derivative instrument

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

A specified price, rate, or other variable that may or may not occur. What we are gambling on that may change in value

A

Underlying

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

A specified unit of measure

A

Notional amount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Amount determined b the multiplication of the notional amount and the underlying

A

Value or settlement amount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Determinable settlement what is to be made if the underlying behaves in a specified way

A

Payment provision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

The use of a derivative to offset anticipated losses

A

Hedging

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Gives the holder the right to buy from the option writer at a specified price during aa specified period of time:

A

Call option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Gives the holder the right to sell to the option writer at a specified price during aa specified period of time:

A

Put option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

An agreement between two parties to exchange a commodity, currency, or other asset at a specified price on a specified future date:

A

Futures contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

One party talks a long position meaning:

A

It agrees to buy a particular item

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

One party takes a short position meaning :

A

It agrees to sell a particular item

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

A publicly traded contract and therefore more liquid:

A

Futures contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Private, over-the-counter contracts therefore less liquid:

A

Forwards or swap contracts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Similar to future contract except they are privately negotiated and do not have a standardized notional amounts or settlement dates

A

Forward contracts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Aa private agreement between two parties that is equivalent to a series of forward contracts:

A

Swap contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

The two inherent risks of all derivative instruments:

A

Market risk and credit risk

17
Q

All derivative instruments are recognized in the balance sheet and measured a :

A

FV

18
Q

Gains or losses on derivatives with no heading destination (involves speculating) are recognized:

A

On the income statement in earnings

19
Q

Gains and losses on Fair value hedges are recognized:

A

On the income statement in earnings

20
Q

Gains and losses on the cash flow hedge are recognized:

A

In other comprehensive income, and then reclassified to earnings

21
Q

For an asset that is denominated in foreign currency, the risk is that:

A

The foreign currency goes down in a value

22
Q

For a liability denominated in foreign currency, the risk is that :

A

The foreign currency goes up in value

23
Q

Gains and losses resulting from aa foreign currency net investment hedge are recognized:

A

In other comprehensive income as cumulative translation adjustment

24
Q

Cash flows from a derivative with no hedging designation should be accounted for in:

A

Investing activated unless the derivative is held for trading purposes

25
Q

If a derivative with no hedging designation is held for trading purposes, the cash flows sold be accounted for in:

A

Operating activities

26
Q

The cash flows from a derivative held as a hedge may be accounted for in:

A

The same category as the item being hedged