Derivatives Hedging

Question 1

What disclosures are required for derivative transactions?

Answer 1

Objectives and Strategies. Context to help investor understand the instrument . Risk Management Policies Complete List of Hedged Instruments

Question 2

Where are G/L on foreign currency hedges recorded?

Answer 2

Other Comprehensive Income (OCI)

Question 3

What is a Cash Flow Hedge? How is it recorded?

Answer 3

Cash flow hedges protect from exposure to fluctuations in cash flows. Initially recorded on Balance Sheet at FV. G/L going on OCI - example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price.

Question 4

What is a Fair Value Hedge? How is it recorded?

Answer 4

FV Hedge offsets exposure in the value of a recognized asset/liability or of an unrecognized commitment. Initially recorded on Balance Sheet at FV. G/L recorded on Income Statement

Question 5

How are derivatives recorded?

Answer 5

At cost when acquired, re-valued at FV each period on Balance Sheet.

Question 6

How are unrealized G/L on trading securities recorded?

Answer 6

Recorded on Income Statement

Question 7

How are G/L on Available for Sale (AFS) securities recorded?

Answer 7

They are included in Other Comprehensive Income (OCI)