AC450 Unit8 Discussion - Topic#1 Hedging Although a company...

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Topic #1: Hedging Although a company would never dispel gains from currency fluctuations, they truly hate accounting for the losses. This is why minimizing risk is so important. It is absolutely necessary to retain a firm’s profits from selling a product or providing a service. Please consider the following questions: What is the purpose of a hedge? Companies enter into hedging relationships to minimize the adverse effect that changes in exchange rates have on cash flows and net income (Hoyle 403). Derivatives for which companies wish to use hedge accounting must be designated as either a cash flow hedge or a fair value hedge. For hedges of recognized foreign currency assets and liabilities and hedges of foreign currency firm commitments, companies must choose between the two types of designation. Hedges of forecasted foreign currency transactions can qualify only as cash flow hedges (Hoyle 403). A hedge can be constructed from many types of financial instruments,
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