Derivatives Hedging Translation Flashcards

1
Q

How are derivatives recorded?

A

At cost when acquired re-valued to fair value each period on Balance Sheet.

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2
Q

How are unrealized gains/losses on trading securities recorded?

A

Recorded on income statement

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3
Q

How are gains and losses on Available for Sale (AFS) securities recorded?

A

They are included in Other Comprehensive Income.

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4
Q

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

A

“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”

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5
Q

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

A

“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.”

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6
Q

Where are gains and losses on foreign currency hedges recorded?

A

In Other Comprehensive Income (OCI)

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7
Q

What disclosures are required for derivative transactions?

A

“Objectives and Strategies

Context to help investor understand the instrument

Risk Management Policies

Complete List of Hedged Instruments”

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