Derivatives Hedging Translation Flashcards

2
Q

How are derivatives recorded?

A

At cost when acquired re-valued to fair value each period on Balance Sheet.

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3
Q

How are unrealized gains/losses on trading securities recorded?

A

Recorded on income statement

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4
Q

How are gains and losses on Available for Sale (AFS) securities recorded?

A

They are included in Other Comprehensive Income.

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5
Q

What is a Fair Value Hedge? How is it recorded?

A

Fair Value Hedge offsets exposure to changes in the value of a recognized asset/liability or of an unrecognized commitment

Initially recorded on Balance Sheet at Fair Value

Gains/Losses recorded on Income Statement

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6
Q

What is a Cash Flow Hedge? How is it recorded?

A

Cash flow hedges protect from exposure to fluctuations in cash flows.

Initially recorded on Balance Sheet at Fair Value

Gains/Losses going to OCI

Example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price.

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7
Q

Where are gains and losses on foreign currency hedges recorded?

A

In Other Comprehensive Income (OCI)

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8
Q

What disclosures are required for derivative transactions?

A

Objectives and Strategies

Context to help investor understand the instrument

Risk Management Policies

Complete List of Hedged Instruments

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9
Q

How do transactions denominated in in a currency other than a company’s functional currency affect the income statement?

A

Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations

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10
Q

For the balance sheet which date’s translation rate is used to report assets and liabilities?

A

The current translation rate as of the balance sheet date is used to report assets and liabilities.

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11
Q

Which date’s currency translation rate is used for the reporting of revenue and expense transactions in a foreign currency?

A

Use the weighted average exchange rate for the current year.

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12
Q

If the functional currency is the reporting currency which exchange rate is used on the foreign currency financial statements?

A

Foreign Currency Financial Statements are remeasured into the Reporting Currency (Dollar) using the weighted-average exchange rate

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13
Q

Where are re-measurement gains and losses due to foreign currency translation reported?

A

On the income statement as Other Income.

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14
Q

Call option

A

Right to BUY at specified price at specified time

Hope price rises - force person to sell at lower price

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15
Q

Put option

A

Right to SELL at specified price at specified time

Hope price decereases - force person to buy at higher price

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16
Q

Intrinsic method

A

Excess if mkt over exercise price

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17
Q

What is a prefect hedge

A

NO possibility of future g:l

18
Q

G/l assoc with change in FV of:
CF hedge
FV hedge

A

CF: recog in OCI

FV: recog in NI in current pd