Derivatives & Hedge Accounting Flashcards
1
Q
Hedges for private companies
A
Election can be done on per swap basis and assumed perfectly effective
Reported at settlement amount and not FV
No documentation has to be in place until it is issued
2
Q
To qualify for simplified approach
A
- Variable rates on debt and swap have to be in same index
- FV at inception must be close or equal to 0
- the FV must be less than or equal to debt principal balance
3
Q
Derivative instrument characteristics
A
No net investment
Underlying amount
Notional amount
Settlement (net)
4
Q
FV Hedge
A
- Changes in A and L
- Items with fixed values
- Changes in value reported on I/S
5
Q
CF Hedge
A
- Uncertain variable CF
- Changes in value reported in OCI
6
Q
Put options
A
- right to sell
- expects a decline in value
- FMV price < Strike price
7
Q
Call option
A
-Right to buy
-Expect increase
FMV price > Strike price
8
Q
Interest rate swaps
A
Off B/S risks that must be disclosed
- Interest rate risk = exchanging lower rate for higher rate
- Credit risk = risk of default
