Financial Instruments and Derivatives

Question 1

What are the three Financial Instruments?

Answer 1

Cash, Ownership Interests in an Entity and Derivative contracts that create a right and obligation to transfer other Financial Instruments

Question 2

How are Financial Instruments recorded?

Answer 2

Recorded at FMV

Question 3

What are the three characteristics for Derivatives?

Answer 3

(SUN), Settlement in Cash or Equivalents, Underlying and Notional Amount, No Net Investment

Question 4

Examples of Notional Amount?

Answer 4

Units, Bushels, Pounds

Question 5

Examples of Underlying?

Answer 5

Specified Price, Interest Rate, Exchange Rate

Question 6

What is a Fair Value Hedge?

Answer 6

Derivative hedges against a recognized Asset or Liability on the Balance Sheet

Question 7

For Fair Value Hedge, How are the changes recorded?

Answer 7

Changes are reported in Income from Continuing Operations (I/S)

Question 8

What is a Cash Flow Hedge?

Answer 8

Derivative hedges against a forecasted transaction that is expected to take place in the future

Question 9

For Cash Flow Hedge, How are the changes recorded?

Answer 9

Changes are reported in Other Comprehensive Income (B/S)