Hedging Flashcards
<p>How are derivatives recorded?</p>
<p>At cost when acquired, re-valued to fair value each period on Balance Sheet.
</p>
<p class=”large” style=”text-align:center”;>How are unrealized gains/losses on trading securities recorded?</p>
<p class=”large” style=”text-align:center”;>Recorded on income statement</p>
<p>How are gains and losses on Available for Sale (AFS) securities recorded?</p>
<p>They are included in Other Comprehensive Income.</p>
<p>What is a Fair Value Hedge? How is it recorded?</p>
<p>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</p>
<p>What is a Cash Flow Hedge? How is it recorded?</p>
<p>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.</p>
<p class=”large” style=”text-align:center”;>Where are gains and losses on foreign currency hedges recorded?</p>
<p class=”large” style=”text-align:center”;>In Other Comprehensive Income (OCI)</p>
<p>What disclosures are required for derivative transactions?</p>
<p>Objectives and Strategies
Context to help investor understand the instrument
Risk Management Policies
Complete List of Hedged Instruments</p>
<p>How do transactions denominated in in a currency other than a company's functional currency affect the income statement?</p>
<p>Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations</p>
<p>For the balance sheet, which date's translation rate is used to report assets and liabilities?</p>
<p>The current translation rate as of the balance sheet date is used to report assets and liabilities.</p>
<p class=”large” style=”text-align:center”;>Which date’s currency translation rate is used for the reporting of revenue and expense transactions in a foreign currency?</p>
<p class=”large” style=”text-align:center”;>Use the weighted average exchange rate for the current year.</p>
<p>If the functional currency is the reporting currency, which exchange rate is used on the foreign currency financial statements?</p>
<p>Foreign Currency Financial Statements are remeasured into the Reporting Currency (Dollar) using the weighted-average exchange rate</p>
<p>Where are remeasurement gains and losses due to foreign currency translation reported?</p>
<p>On the income statement as Other Income.</p>
