Concept of Hedge Instrument: Accounting | PPT

ACCOUNTING

Hedge Instrument
 Hedge Instruments are the financial instruments that has been used by
most of the investors to offset the change value of the hedged items.
 It is used to minimise the risks and to secure their exchange rate in the
future.
 This is done in the form of contracts to eliminate the risks & acquire a
potential gain in the future.
 Hedge instruments includes various financial instruments like stocks,
forward contracts, future contracts, swaps and options.

Hedging Techniques
 Contracts for forward exchange of currencies/interest
 Future contract for currencies/interest
 Money market operations
 Calls on equities

Hedged instrument under GAAP
 Under GAAP accounting system, the hedging instruments must
be highly effective in achieving the changes in the fair value
that has been attributed to the hedged risks.
 This means that, the changes in fair value of hedging
instrument is in the range 80%-125% of the changes in fair
value that has been attributed to the hedged risks.