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. To explain : The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

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Answer 1

Question

Chapter A, Problem A.1BYP

(1)

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.

To explain: The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

(2)

To determine

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.

Cash flow hedge: If a company uses any derivative to cover the risk due to cash flow changes of asset, or a liability, or a commitment to buy or sell, the derivative is classified as cash flow hedge. This type of hedge focusses to control the risk due to current price changes, like more cash outflow, or less cash inflow.

To indicate: The type of hedge accounting used for this hedging transaction.

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Answer 2

Question

Chapter A, Problem A.1BYP

(1)

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.

To explain: The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

(2)

To determine

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.

Cash flow hedge: If a company uses any derivative to cover the risk due to cash flow changes of asset, or a liability, or a commitment to buy or sell, the derivative is classified as cash flow hedge. This type of hedge focusses to control the risk due to current price changes, like more cash outflow, or less cash inflow.

To indicate: The type of hedge accounting used for this hedging transaction.

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Answer 3

Question

Chapter A, Problem A.1BYP

(1)

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.

To explain: The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

(2)

To determine

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.

Cash flow hedge: If a company uses any derivative to cover the risk due to cash flow changes of asset, or a liability, or a commitment to buy or sell, the derivative is classified as cash flow hedge. This type of hedge focusses to control the risk due to current price changes, like more cash outflow, or less cash inflow.

To indicate: The type of hedge accounting used for this hedging transaction.

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Answer 4

Question

Chapter A, Problem A.1BYP

(1)

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.

To explain: The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

(2)

To determine

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.

Cash flow hedge: If a company uses any derivative to cover the risk due to cash flow changes of asset, or a liability, or a commitment to buy or sell, the derivative is classified as cash flow hedge. This type of hedge focusses to control the risk due to current price changes, like more cash outflow, or less cash inflow.

To indicate: The type of hedge accounting used for this hedging transaction.

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Answer 5

Chapter A, Problem A.1BYP

(1)

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.

To explain: The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

(2)

To determine

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.

Cash flow hedge: If a company uses any derivative to cover the risk due to cash flow changes of asset, or a liability, or a commitment to buy or sell, the derivative is classified as cash flow hedge. This type of hedge focusses to control the risk due to current price changes, like more cash outflow, or less cash inflow.

To indicate: The type of hedge accounting used for this hedging transaction.

Answer 6

Chapter A, Problem A.1BYP

(1)

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.

To explain: The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

Answer 7

Chapter A, Problem A.1BYP

(1)

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.

To explain: The meaning of the declaration “deferred net losses on derivatives would be reclassified into earnings”.

Answer 8

(2)

To determine

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.

Cash flow hedge: If a company uses any derivative to cover the risk due to cash flow changes of asset, or a liability, or a commitment to buy or sell, the derivative is classified as cash flow hedge. This type of hedge focusses to control the risk due to current price changes, like more cash outflow, or less cash inflow.

To indicate: The type of hedge accounting used for this hedging transaction.

Answer 9

(2)

To determine

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.

Cash flow hedge: If a company uses any derivative to cover the risk due to cash flow changes of asset, or a liability, or a commitment to buy or sell, the derivative is classified as cash flow hedge. This type of hedge focusses to control the risk due to current price changes, like more cash outflow, or less cash inflow.

To indicate: The type of hedge accounting used for this hedging transaction.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. A - Prob. A.1Q Ch. A - Prob. A.2Q Ch. A - Prob. A.3Q Ch. A - Prob. A.4Q Ch. A - Prob. A.5Q Ch. A - Prob. A.6Q Ch. A - Prob. A.7Q Ch. A - Prob. A.1E Ch. A - Prob. A.2E Ch. A - Prob. A.3E

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Chapter A Solutions