Flashcards in Hedge Accounting Deck (14):
In cash flow hedge, the item being hedged is measure using?
PV of expected cash inflow and outflows
Where to record gain or loss for Fv hedge and cash flow hedge?
FV hedge: net income
CF hedge: OCI, the effective portion in OCI, ineffective portion go to current income.
What type of hedge is firm commitment and forecasted transactions?
Forecasted transactions: CF hedge
Foreign currency hedge can be used for?
Hedge risk from foreign currency rate changes from planed transactions
Foreign currency rate change for AFS securities ( speculate)
Rate related change in accounts receivables/ payables
Can be used as FV hedge ( firm commitment, AFS, and net investment in foreign operations) or CF hedge ( forecasted transactions), and hedge of recognized asset or liability can be either FV or CF hedge, depends on management's designation.
Cash flow hedge statement disclosure requirement
The effective portion recorded in OCI need to be disclosed
The ineffective portion reported in net income need to be disclosed
Specific Disclosure is required for both derivative issuers and holders
What is a call option and out option?
Call option is the holder has right to acquire an underlying at an exercise or stock price, anytime during the option.
Put option is holder has right to sell
The process of separating an embedded derivative from its host contract.
At the money
In the money
Out of money
When underlying (fair value of option) is =, >,
A feature on an financial instrument or other contract, which if the feature stood alone, would meet the definition of a derivative
An agreement between two parties
To buy and sell
Specific Q or commodity, FC, or financial instrument ( known quantity)
At an agreed upon price ( known price)
Delivers at a designated future date. ( known date)
A forward based contract
Make or deliver (sell) of a designated financial instrument, FC, or commodity ( unknown quantity)
During a designated period. ( unknown date)
At a specific price or yield. ( known price)
IFRS hedging differ from GAAP
Has one or more underlying
Requires no or little initial investment
Permits net settlement
NO notional amount
Can hedge partial life of the hedged item
Allow hedge a forecasted business combination that is subject to FC risk.
IFRS (2 requirements) derecognizing a transfer of financial asset rule vs GAAP (3 requirements)
IFRS: must be transferred outside of the consolidated groups of transferor
The transferor must have transferred to substantially all the risk and reward of ownership of the financial asset
For GAAP, one more requirement - the contractual rights to the financial assets cash flows can't be retained by the transferor.