Is this chapter worth spending minutes for at this time? I haven’t read it ever.
The general overview is that there are a lot of power proxies for cash flow out there (namely EBITDA), and that companies have all sorts of nasty adjusted earnings figures which they report that need to be closerly examined. Only item of importance here is a very oddly placed section on hedges… namely asset hedges, cash flow hedges, and foreign investment hedges. Asset Hedges: The change in value should perfectly offset the value of the asset which has been hedged. The unrealized gain/loss flows through P&L. Any ‘ineffective’ portion of hedge also hits p&l Cash flow hedge: The change in value is direct to equity. At the time of the underlying cash flow, charge to equity reversed an accumulated gain/loss hits p&l FX investment hedge: Same as CF.
Glad you reminded me of those hedges. Seriously, what the f are they in that chapter for? Agreed, this is one you can skip, pepp.
What is “ineffective” hedge when hedging for asset/liability?
asset hedge is also called fair value hedge. fx hedge is same as cash flow with the exception that the gains/losses that go direct to equity are netted with the CTA in the B/S and if its temporal method used then it goes to I/S to be netted with translation gains/losses there. “ineffective” part occurs when there wasnt a perfect hedge–its kind of the leftover or unhedged amount.
lzhao Wrote: ------------------------------------------------------- > What is “ineffective” hedge when hedging for > asset/liability? straight to income statement fv hedge/asset or put option- all to income cash flow hedge- equity first, then to income foreign investment hedge- equity please correct me if i am wrong on cash flow
youre right skip, i think of CF as same thing as AFS treatment and FV as same thing as trading
cash flow hedge first equity, then income cash flow hedge, first equity, then income cash flow hedge, first equity, then income foreign investment- equity fv hege asset- income