Derivitives

Question 1

What kind of a hedge is a speculation?

Answer 1

A Fair Value speculation, NOT A HEDGE

Question 2

How are speculations reported on the BS?

Answer 2

Adjusted to Fair Value, with gains or losses hitting income statement

Question 3

Holders of receivables receive a gain or loss if the exchange rate increases?

Answer 3

Gain

Question 4

If someone owes a liability and the exchange rate increases, is this a gain or a loss?

Answer 4

Loss

Question 5

What exchange rate are the assets and liabilities used to translate?

Answer 5

Current, date of balance sheet

Question 6

What exchange rate is used for translation of revenue, expense, gain and loss accounts?

Answer 6

Rate on day transaction occurred OR AVERAGE

Question 7

What must a company provide in order to account for a derivitive?

Answer 7

1) required to document the relationship between the hedge and the hedged risk 2) provide an explanation on how effectiveness will be measured

Question 8

Hedge Reporting

Answer 8

must mitigate risk

Question 9

What exchange rate is used to translate capital accounts?

Answer 9

Historical