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FAR > F6M3 > Flashcards

F6M3 Flashcards

1
Q

Derivative Instrument

A

derives its value from the value of some other instrument

requires NO initial investments

terms require or permit a cash settlement

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2
Q

Underlying

A

specified rate or other variable

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3
Q

Strike price

A

break even point

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4
Q

Notional amount

A

how many shares

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5
Q

value/settlement amount

A

paid by loser @ expiration date

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6
Q

hedging

A

reducing risk of holding/trading asset and liabilities

offset potential losses

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7
Q

OFFS

A

options
future
forwards
swaps

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8
Q

Option - long

A

buy/owns a right

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9
Q

Option - short

A

sell/write/has a contingent obligation

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10
Q

Call option

A

holder has the right to BUY for a specified price at a specified time

BUY UP
SELL DOWN

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11
Q

Put option

A

gives the holder the right to SELL as a specified time

BUY DOWN
SELL UP

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12
Q

Futures contract

A

publicly traded

more liquid

obligated to perform according to contract terms

made through a clearing house

Standardized notional amounts

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13
Q

future - long

A

buy

profit if it goes up

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14
Q

future - short

A

sell

profit if it goes down

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15
Q

Forward

A

same as the future but it is private OTC

less liquid

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16
Q

Swap contract

A

equivalent to a series of forward contracts

17
Q

Market risk

A

risk that the entity will incur a loss

18
Q

Credit risk

A

risk that the other party will not perform according to the contract terms

19
Q

Derivative instrument valuation

A

balance sheet as asset or liability

measured at FV

20
Q

gain or loss on a NO hedging designatio

A

earnings on IS

21
Q

Cash flow hedging

A

hedges exposed to variability in expeced future cash flows

22
Q

effective cash flow hedge

A

OCI

23
Q

ineffective cash flow hedge

A

earnings

24
Q

long hedge

A

inflows go UP in the future

offset risk that the cost of the asset you will buy in the future go UP in value

25
Q

short hedge

A

inflows DOWN in the future

offset risk that you SELL in the future will go DOWN in value

26
Q

Foreign currency fair value hedge

A

earnings

27
Q

foreign currency net investment hedge

A

change in FV are reported in OCI as cumulative translation adjustment for EFFECTIVE

ineffective in earnings

28
Q

Cash flow with no hedge

A

investing or if they are trading, operatng

29
Q

cash flow if there is hedge

A

same cash flow as the item hedged

30
Q

Qualified derivative

A

used to (designated) to hedge exposure to variable in cash flow associated with asset, liability, or forecasted transaction

FAR (41 decks)

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