Hedge Accounting

Question 1

What are the 2 Types of Hedges

Answer 1

FV hedges and Cashflow hedges

Question 2

What are the steps in a recording a forward contract

Answer 2

Step 1 — Initiation dates (dates may differ)

Record the fair value of the hedged item and the hedging instrument.

Step 2 — Reporting dates

Update the hedged item to the spot rate and variable side of the hedging instrument to the forward rate on the reporting date,

any gain or loss in net income.

Step 3 — Settlement date

Update the hedged item and variable side of the hedging instrument to the spot rate on the settlement date, and record any gain or loss in net income.

Record the settlement of the hedged item and the hedging instrument.

Question 3

What is a Fair Value hedge

Answer 3

Cashflows are fixed in terms for Foreign currency and the exchange rate fluctuates

Question 4

What is the variable side of the hedging instrument

Answer 4

Due to Broker - If Hedge receivable

Due from Broker - If Hedge Payable

Question 5

What is a cash-flow hedge

Answer 5

hedges you from varaibility in cashflows from an asset or liability

entered into hedging instrument before hedge item (Key diff)