Search results
Results From The WOW.Com Content Network
Statements of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, commonly known as FAS 133, is an accounting standard issued in June 1998 by the Financial Accounting Standards Board (FASB) that requires companies to measure all assets and liabilities on their balance sheet at “fair value”.
IAS 39 defines two major types of hedges. The first is a cash flow hedge, defined as: “a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction, and (ii) could affect profit or loss”. [5]
Foreign exchange derivatives may also be used to hedge against translation exposure. [17] A common technique to hedge translation risk is called balance-sheet hedging, which involves speculating on the forward market in hopes that a cash profit will be realized to offset a non-cash loss from translation. [24] This requires an equal amount of ...
Transaction exposure describes the risk and level of uncertainty that an investor, typically a business, takes on due to fluctuating international exchange rates.
A cash flow hedge may be designated for a highly probable forecasted transaction, a firm commitment (not recorded on the balance sheet), foreign currency cash flows of a recognized asset or liability, or a forecasted intercompany transaction. A fair value hedge may be designated for a firm commitment (not recorded) or foreign currency cash ...
where is the maturity of the longest transaction in the portfolio, is the future value of one unit of the base currency invested today at the prevailing interest rate for maturity , is the loss given default, is the time of default, () is the exposure at time , and (,) is the risk neutral probability of counterparty default between times and .
In both cases, efficient hedging depends on being able to drill down into the balance sheet to see the currencies of the transactions sitting on the company's books around the world. Currency analytics automates that drill-down process and presents balance sheet exposure data in an easy-to-use dashboard that allows companies to efficiently ...
More specifically, "Hedge relationship" describes the criteria for including the fair value of derivatives on balance sheet as part of an effort to regulate and normalize the use of hedging in corporate accounting.