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