FAR 6.3 - Derivatives & Hedge Accounting

Question 1

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

Answer 1

Derivative instrument

Question 2

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

Answer 2

Underlying

Question 3

A specified unit of measure

Answer 3

Notional amount

Question 4

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

Answer 4

Value or settlement amount

Question 5

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

Answer 5

Payment provision

Question 6

The use of a derivative to offset anticipated losses

Answer 6

Hedging

Question 7

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

Answer 7

Call option

Question 8

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

Answer 8

Put option

Question 9

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

Answer 9

Futures contract

Question 10

One party talks a long position meaning:

Answer 10

It agrees to buy a particular item

Question 11

One party takes a short position meaning :

Answer 11

It agrees to sell a particular item

Question 12

A publicly traded contract and therefore more liquid:

Answer 12

Futures contract

Question 13

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

Answer 13

Forwards or swap contracts

Question 14

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

Answer 14

Forward contracts

Question 15

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

Answer 15

Swap contract

Question 16

The two inherent risks of all derivative instruments:

Answer 16

Market risk and credit risk

Question 17

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

Answer 17

FV

Question 18

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

Answer 18

On the income statement in earnings

Question 19

Gains and losses on Fair value hedges are recognized:

Answer 19

On the income statement in earnings

Question 20

Gains and losses on the cash flow hedge are recognized:

Answer 20

In other comprehensive income, and then reclassified to earnings

Question 21

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

Answer 21

The foreign currency goes down in a value

Question 22

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

Answer 22

The foreign currency goes up in value

Question 23

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

Answer 23

In other comprehensive income as cumulative translation adjustment

Question 24

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

Answer 24

Investing activated unless the derivative is held for trading purposes

Question 25

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

Answer 25

Operating activities

Question 26

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

Answer 26

The same category as the item being hedged