Accounting for Currency Hedging using Forward Contract | Advanced Accounting | CPA Exam FAR
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- Опубликовано: 17 ноя 2018
- In this session, I explain accounting for currency hedging using forward contract. Currency hedging is a strategy designed to mitigate the impact of currency or foreign exchange (FX) risk on international investments returns. Popular methods for hedging currency are forward contracts, spot contracts, and foreign currency options. In very simple terms, Currency Hedging is the act of entering into a financial contract in order to protect against unexpected, expected or anticipated changes in currency exchange rates.
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Describe a forward exchange contract. A forward exchange contract is an agreement to exchange currencies of two different countries at a specified rate (the forward rate) on a stipulated future date. At the inception of the contract, the forward rate is usually different from the spot rate.
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One of the best explained hedging accounting videos on RUclips
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Thank you SO MUCH!! I have a final with this tomorrow and you're saving me.
Good luck Sarah! Thank you and please visit the website for more farhatlectures.com/
Thank you so much, this was immensely helpful. I was having a lot of trouble understanding that this wasn't all some giant franken-transaction. Explaining that the purchase and the hedge were two completely different sales was super helpful
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Thank you soooo much for the video, it explains a lot better than my textbook!
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Thanks for this one! Explained in a simple way
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Hi sir! Should we already record the forward contract receivable at the date of transaction or not until there is gain or loss on forward contract? Thanks!
Thank you so much...
Thank you very much. This explanation was excellently presented. I hope it is within IFrs 15 guidelines but from basic accounting and trading perspective, it put things clearly.
hi Sumesh, I cover US GAAP.
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My experience is to not have been with any business that did hedging; however, all the businesses did not have many foreign currency transaction situations, but had a subsidiary that only exclusively worked in the foreign country. My guess is that this can become a big mess if not truly understood. Have seen how due to and due from subsidiaries and affiliates become a total mess and that should not be a hard as this. My opinion.
I just wondering on the settlement date, would the spot rate always equal the forward rate?
Farhat...thanks a lot. You are a great teacher Thanks much.
Thanks and welcome. Please visit my website: www.farhatlectures.com
Sir Farhat, this is a well-explained topic. Do you also have a video using an example of items sold to foreign business? recording journal entries using A/Receivables?
results for the calculation of 210,000 x 0,1314 is 27,594 and not 27,549 difference of 45, when we have a difference that the toral is 9, means that we inverted digitis
Why is the difference between the payable amount and FC receivable amount a gain on April 1st? Time stamp 23:51
11:49 why do we have payable and receivable of 27,594 to the same party?
Dear Farhat; what is the balance sheet entry and value of the merchandise bought by Christel Co. on Dec. 1st? It must be inventory (i.e. already received). And it would probably be valued at USD 26,565 (HKD 210,000 * 0.1265 USD / HKD). I am looking for the source of the USD 126 transaction gain on Dec. 31 and the only way I can explain it is, if on the asset side, the inventory keeps its value from Dec. 1. Thanks for your help.
Thank you so much Sir Farhat
Most welcome. Here's my advanced accounting course: farhatlectures.pathwright.com/library/advanced-accounting/about/
Thanks very much. Just FYI - there is a error at 9:29..... The figure was 27,594 but you wrote down 27,549.
if forward contract means getting a loan from the bank? we bought merchandise from Hong Kong and to make them payment we got forward contract ( to lock our price). so is it like a loan and how do we pay back to the bank? right away ? please reply
Do you cover non deliverable forwards?
Regarding the $1,029 upfront amount, wouldn’t you amortize this over the forward contract term?
Also, thank you for a very clear example!
Yes, you can amortize to expense over the life of the contract. I ignored in this example.You are most welcome. Please subscribe and share.
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Hi Farhat, I enjoy your videos very much. I just wondering on the settlement date, would the spot rate always equal the forward rate?
Not necessary. You are welcome.
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Hi Farhat.. your lecture was very clear and informative. Do you have a lecture on forward contract swaps?
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Great lecturer thank you very much
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Very confused about derivative hedging. Why sometimes the spot rate is taken into account when doing JE, for example, in this video; but sometimes, JE just ignores spot rate, like in your videos doing Cash Flow and Fair Value Hedging in Foreign Currency.
Very surface level:
The Spot Rate is used to value the item that we are hedging (ex. A/P, A/R, Inventory, etc.), giving us the current value of it based on the date
The Forward Rate is used to value the hedge/derivative itself (ex. Futures contract, Forward contract, etc.) and the gain/loss associated with it
How can i download the PPT please.
Its because they're hedging different types of situations
In this situation, they made a purchase which means spot rate is used
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