“We use derivative instruments to manage risks related to foreign currencies, eq

Question

“We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible.

Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment. All notional amounts presented below are measured in U.S. dollar equivalents.”

Discussion Question

1. What are the accounting challenges involved with using derivatives to mitigate foreign currency risk?

Explanation / Answer

Ans : Accounting challenges involved with using derivatives are the most of derivative accounting happens in the fair value and fair value of the instrument keeps on fluctuating so to determine a constant amount is a difficult task and it also involves continous monitoring as the amount keeps on changing and its become essential to keep its impact reflected in the financials of the company so that user are well aware of company curreny and financial risk . thus the entire process involved in derivative accounting results in challenging process.

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