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. This type of hedge focusses to control the risk due to future price changes.
Foreign currency hedge: A multinational company faces the risk due to changes in foreign currency rate, when the transactions of its foreign operations are denominated in foreign currency, and such transactions require settlements through translation. The derivative used to hedge such type of foreign currency risk is designated as foreign currency hedge.
To indicate: The type of hedge against the activity given
Want to see the full answer?
Check out a sample textbook solution
- Mercer Company applies manufacturing overhead to jobs on the basis of direct labor hours used. Overhead costs are expected to total $428,400 for the year, and direct labor usage is estimated at 89,250 hours. For the year $415,320 of overhead costs are incurred and 92,400 hours are used. Compute the manufacturing overhead rate for the year.arrow_forwardPlease provide the correct answer to this general accounting problem using valid calculations.arrow_forwardCan you solve this general accounting problem using appropriate accounting principles?arrow_forward
- Please answer this help! The answer for three thorugh 5 is not 0. The last person to help me on Bartleby got this incorrect!arrow_forwardHow can I solve this financial accounting problem using the appropriate financial process?arrow_forwardExplain and add some more info to it as well please.arrow_forward
- Please help!!!! I need it badarrow_forwardA company sells a product for $25 per unit. The variable cost per unit is $15, and the total fixed costs are $50,000. a) How many units must the company sell to break even? b) If the company wants a profit of $10,000, how many units must it sell?arrow_forwardWhat is the amount of sales that will be necessary to earn the desired profit?arrow_forward
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education