NISM Series XIII Common Derivatives Certification Exam Notes
Page 187 Of 303
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Disclosure Requirements: Entities must disclose accounting policies, risk management objectives, hedging activities, fair value measurement methods, and the impact on profit/loss and equity.
Types of Hedge Accounting: There are three recognised types: fair value hedge, cash flow hedge, and net investment hedge.
Fair Value Hedge: Used to hedge risk of fair value change in assets, liabilities, or unrecognised firm commitments.
Cash Flow Hedge: Used to hedge risk of variability in cash flows from existing assets/liabilities or forecast transactions. Effective hedge gains/losses are recognised in equity.
Net Investment Hedge: Used by investors to hedge net assets in foreign operations. Foreign exchange gains/losses are recognised in equity; ineffective portions are recognised in profit/loss.
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