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Cards In This Set
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A transaction that is denominated in a currency other than the entity’s functional currency, which is payable at a fixed amount at a later date, may result in an
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Increased or decreased amount payable because of a change in the exchange
rate. This increase/decrease would be classified as a foreign exchange transaction gain/loss, and would be included as a component of income. |
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A foreign currency transaction is a transaction denominated in a currency
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Other than the entity’s functional currency.
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Denominated means that the balance is
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Fixed in terms of the number of units of a foreign currency, regardless of changes in the exchange rate.
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Derivatives are financial instruments that derive their value from changes in a benchmark based on
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Stock prices, interest rates, mortgage rates, currency rates, commodity prices, or some other agreed-upon base.
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Derivative financial instruments are contracts that are supposed to protect or hedge one or more of the parties from
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Adverse movement in the underlying base.
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Derivative instruments meet the definition of assets and liabilities. As such they should be reported on
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The entity’s financial statements.
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The most relevant measure for reporting financial instruments is
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Fair value.
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If a derivative instrument does not qualify as a hedging instrument, then its gains or losses must be reported and recognized in
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Current earnings.
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The basic definition of an underlying, is any
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Financial or physical variable that has either observable changes or objectively verifiable changes.
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A call option is in the money if
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The price of the underlying is greater than the strike or exercise price of the underlying.
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An at-the-money option is one in
which the price of the underlying is |
Equal to the strike or exercise price.
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A call option is out of the money if the strike or exercise price is
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Greater than the price of the underlying.
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Derivative instruments contain
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One or more underlyings and one or more notional amounts, no initial net investment or smaller net investment
than required for contracts with an expected similar response to market changes, and terms that require or permit net settlement, net settlement by means outside the contract, and delivery of an asset that is substantially the same as net settlement. |
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Notional amounts are the referenced associated asset or liability that are commonly a
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Number of units.
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Disclosures related to financial instruments that are used as hedging instruments must include the following information:
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Objectives and strategies for achieving them, context to understand the instrument, risk management policies and a list of hedged instruments.
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