Question
Many firms use derivative instruments to hedge exposure to changes in the fair value of an asset or liability, or to hedge exposure to variability
(Select one or more)
a.
Of what quality are the market values that are being used to mark derivatives to market at the balance sheet date? Are the market values obtained from liquid markets with many participants?
b.
Does the derivative has one or more underlyings? Underlyings are a specified interest rate, commodity price, foreign exchange rate, or other variable.
c.
Has the company done a fair job of classifying its derivative hedges as either fair value hedges or cash flow hedges? Gains and losses on cash flow hedges affect earnings later than those of fair value hedges.
d.
Are the company's net gains or losses each period relatively small or large? Are the net gains or losses volatile? Large and volatile net gains or losses may signal a poor use of derivatives.
Step by Step Solution
3.44 Rating (154 Votes )
There are 3 Steps involved in it
Step: 1
When examining the financial reports of a company that uses derivative instruments to hedge there ar...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started