AFM491 Lecture Notes - Lecture 19: Hedge Accounting, Forward Contract, Futures Contract

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM491
• Professor: Robert Ducharme

Document Summary

Offsetting risk: ar coming in three months. Loan in that currency now: asset offsets liability, usually less intentional, forward or futures contract to sell the foreign currency at that time, derivative contract, receivable and payable denominated in different amounts. Derivatives: value changes in response to an underlying item, accounting depends on the intent, hedge another item, optional treatment, hedge accounting, speculative purposes (investment) Fvpl: derivatives available as hedges, forward, executed in the future, pay/receive an equivalent amount of foreign currency in exchange for a specified amount in cad at a specified rate at a future. Individually negotiated: direction of foreign currency, payable or receivable, opposite of what you are hedging, futures. Firm commitment: record at current fair value, 0, fmv of contract = (difference in contract rate and forward rate) x nominal value of the contract, discounted to present value, lock in exchange rate today. Forward rate: sale transaction, dr a/r, cr sales.