Derivatives : Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options. Hedging : This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction. Fair value hedge : If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. To explain : Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Question

Want to see the full answer?

Answer 1

Question

Chapter A, Problem 2Q

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.

To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Please answer the financial accounting

Please give me true answer this financial accounting question

General Accounting

Answer 2

Question

Chapter A, Problem 2Q

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.

To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter A, Problem 2Q

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.

To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter A, Problem 2Q

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.

To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter A, Problem 2Q

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.

To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Answer 6

Chapter A, Problem 2Q

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.

To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Answer 7

Chapter A, Problem 2Q

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.

To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged

Answer 8

Expert Solution & Answer

Answer 9

Expert Solution & Answer

Answer 10

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 11

Ch. A - Prob. A.1Q Ch. A - Prob. 2Q Ch. A - Prob. A.2Q Ch. A - Prob. 3Q Ch. A - Prob. A.3Q Ch. A - Prob. 4Q Ch. A - Prob. A.4Q Ch. A - What is the effect on interest of an interest rate...Ch. A - Prob. A.5Q Ch. A - How are derivatives reported on the balance sheet?...

Solution Summary: The author explains that derivatives are financial instruments which are meant for managing risk and safeguarding the risk created by others. Hedging is the business deal entered into by a company to produce exposure or coverage over the exposure caused by the existing

Want to see the full answer?

Chapter A Solutions