Flashcards in Foreign Currency Hedges Deck (18)
FX forward contracts establish a ______ to buy or sell foreign currency.
Obligation, such as a contract that requires paying in US dollars or Euros
FX option contracts establish a _____ to buy or sell a foreign currency.
FX derivatives are measured at historical price. TF
Changes in FX derivative FVs = Gains and Losses
Speculation G/L is recognized in what?
Spot rates are used to record AR and AP transactions, forward rates are used to record forward contracts. TF
When a forward contract is entered, what is recorded?
No debit or credit entry, only a memo
The forward contract FV is what?
The amount of the underlying x the forward rate
Forward contracts are marked to market on the balance sheet date and when exercised. TF
Option contract fair value is listed as the option ________.
FV hedge accounting applies to the hedge of a forecasted transaction. TF
False, Cash flow hedge acctg
The effective portion of a forecasted transaction hedge is always the PV of the expected cash flow (cash flow hedge). TF
True, and reported in OCI
The ineffective portion of a forecasted transaction hedge is always the PV of the expected cash flow (cash flow hedge). TF
False, the ineffective portion is the difference between the PV of expected cash flow and the FV of the forward contract. It is recorded as a gain or loss and into current income.
The use of a forward contract to hedge a forecasted transaction requires that the forecasted transaction be expected to be initiated by the entity hedging the forecasted transaction.
False, does not require
Any FC asset or liability can be hedged, FV or CF. TF
Foreign currency AFS investments hedges are ALWAYS FV hedges. TF
True, and all gains or losses get reported in NI
In hedging a foreign currency investment AFS, the investment security (must/must not) be traded in the investors functional currency.