Hedge Accounting

Question 1

Eligible Hedged Item

Answer 1

an item the entity wants to protect from exposure to a variable - such as foreign exchange rates

an existing asset/liability position

an unrecognized firm commitment

a highly probable future transaction

Question 2

Eligible Hedging Instrument

Answer 2

an item used to reduce or eliminate exposure from the risk of the variable on the hedge item

derivatives - forward contract

non-derivatives: monetary assets/liabilities

Question 3

Fair Value Hedge

Answer 3

a hedge of exposure to changes in fair value where cash flows are fixed, often due to foreign currency fluctuations, so the fair value of the hedged item fluctuates with changes in, for example the foreign exchange rate

Question 4

Initiation Date

Answer 4

the date on which a transaction such as the delivery or receipt of goods ore services is to be effective

Question 5

Settlement Date

Answer 5

date on which monetary asset or liability resulting from transaction is settled; the date on which cash is received or paid

Question 6

Spot Rate

Answer 6

the exchange rate for immediate purchase or delivery of foreign currency

Question 7

Forward Rate

Answer 7

the exchange rate for future purchase or delivery of foreign currency

Question 8

Due to Broker

Answer 8

a payable to the broker

Question 9

Due from Broker

Answer 9

a receivable from the broker