hedging strategies that the Controller should become familiar with are cash flow hedges and fair value hedges. Cash flow hedges relate to forecasted transactions where the effective portions of the hedge is initially reported in other comprehensive income and are later reclassified into earnings any portion of the hedge that is ineffective is reported currently in earnings (FASB ASC 815-30‚ 2010). Fair value hedges can be associated with
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instruments. When do the alternative hedging approaches produce the same result? Answer: Hedging transaction exposure by a forward contract is achieved by selling or buying foreign currency receivables or payables forward. On the other hand‚ money market hedge is achieved by borrowing or lending the present value of foreign currency receivables or payables‚ thereby creating offsetting foreign currency positions. If the interest rate parity is holding‚ the two hedging methods are equivalent. 3. Discuss and
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Exposure EASY (definitional) 10.1 ___________ a certain currency exposure means establishing an offsetting currency position so that the gain or loss from the exposure on the original currency is exactly offset buy the gain or loss from the currency hedge. a) Arbitraging b) Cross-hedging c) Hedging d) Risk shifting Ans: c Section: Alternative measures of foreign exchange exposure Level: Easy 10.2 Hedging cannot provide protection against ________ exchange rate changes. a) expected b) nominal
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be managed: - Natural Hedges - Cash Management - Adjusting of Intracompany accounts - International financing hedges and currency hedges through forward contracts‚ futures contracts‚ currency options and currency swaps NATURAL HEDGE - A hedge (risk reduction action) that occurs naturally as a result of a firm’s normal operations. For example‚ revenue received in a foreign currency and used to pay commitments in the same foreign currency would constitute a natural hedge. FOUR POSSIBLE SCENARIOS
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Tutorial 7: Management of Economic Exposure QUESTIONS 1. How would you define economic exposure to exchange risk? Answer: Economic exposure can be defined as the possibility that the firm’s cash flows and thus its market value may be affected by the unexpected exchange rate changes. 2. Explain the following statement: “Exposure is the regression coefficient.” Answer: Exposure to currency risk can be appropriately measured by the sensitivity of the firm’s future cash flows and the
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December. State the contract that should be used for hedging when the expiration of the hedge is in a) June b) July c) January A good rule of thumb is to choose a futures contract that has a delivery month as close as possible to‚ but later than‚ the month containing the expiration of the hedge. The contracts that should be used are therefore a) July b) September c) March Problem 3.9. Does a perfect hedge always succeed in locking in the current spot price of an asset for a future transaction
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Summary of IAS 39: IAS 39: Financial Instruments: Recognition and Measure was first adopted by European Union for annual periods beginning on or after January 1st 2005. The goal was to provide principles for recognising and measuring financial assets‚ financial liabilities (including derivative financial instruments) and some specific contracts to buy and sell non-financial items. Initial Recognition: Financial asset or financial liability is only recognised on balance sheet when and only when
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love‚ relationship‚ wisdom or happiness could all be just an illusion. The way that people perceive things can be heavily influenced by many outside factors such as the media‚ entertainment‚ literature‚ and so on. In Empire of Illusion‚ the author Hedges uncovers the truth of how humans’ points of views about media‚ entertainment‚ love‚ relationship‚ and wisdom has been influence by the surrounding environment. He has shown the values of those aspects are being change by peoples’ point of view. Media
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Hedging in the Mining Industry Strategy‚ Control and Governance Contents Foreword Chapter 1: Executive summary Chapter 2: To hedge or not to hedge? Considering a strategy 1 2–4 5 – 12 Chapter 3: What tools are available? Implementing the hedging strategy 13 – 24 Chapter 4: How do we control and monitor a hedging programme? 25 – 36 Chapter 5: How‚ why and to whom do we communicate our risk-management strategy? 37 – 44 Chapter 6: What are the accounting implications? 45 – 49 Appendix
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HOW MUCH SHOULD WE USE DERIVATIVES HEDGES? A Study in Airline Industry Changgull Song Fordham University‚ Deming Scholars MBA‚ changgull@gmail.com For managers of airlines‚ it is not always easy to predict the jet fuel costs‚ which affect the profitability of the firm. As a solution‚ some airlines aggressively hedge against the variability‚ but some others don’t. Here‚ we are trying to find an answer to a question‚ “How much should they hedge?” Variability in Earnings: Is it Bad? In a
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