Hallo, as it is stated in the subject, how should be treated unrealized gains and losses on cash flow hedging derivatives? Is in it the same treatment as with assets held for trading purposes, affecting net income? I am doing schweser questions and found this confusing.
No.
-Fair Value Hedges: effective and ineffective portions flow through P&L.
-Cash Flow Hedges (which is what you’re referring to): park it in OCI and the ineffective portion flows through P&L while the remainder will be matched with the cash flow it’s intended to hedge when that cash flow affects earnings.
-Currency Hedge: effective and ineffective portions recognized in OCI.
The way I remember it is there’s two extremes, fair value and currency, while cash flow hedges are a mixture of the two.
Two other notes:
- Currency remeasurements or translation G/L don’t flow through P&L so it makes sense that the hedge would also bypass P&L. This bit may help or hinder - maybe it’s better to wait til L2 for this.
- All hedging instruments are reported on the B/S at fair value.
Thanks a lot