Hedge accounting

Hedge accounting is an accounting method that allows companies to modify the standard basis for recognising gains and losses on hedging instruments and the exposure they are intended to hedge, with both being registered in the same accounting period. This procedure reduces income statement volatility that would otherwise arise if both elements were accounted for […]

Hedge effectiveness

Hedge effectiveness defines how efficiently a company or investor’s hedging instrument protects the fair value of a specific asset or liability. In other words, the effectiveness of the hedge relationship means that the fair value of the hedging instrument and the hedged item move in opposite directions. That way, changes in the value of one […]

Hedge effectiveness ratio

Hedge effectiveness ratio is a corporate accounting concept that defines the degree of efficacy of a risk hedging instrument in protecting to the fair value of the cash flows that it is expected to hedge. According to international accounting standards, companies using derivative financial instruments to offset exposure risks can use hedge accounting methods to […]

Hedge effectiveness testing

Measuring hedge accounting is one of the requirements of the IFRS 9 standards for the recognition of financial instruments. Companies applying hedge accounting are required to evaluate the performance of their hedging instruments in protecting the assets, cash flows or investments they were intended to protect. These tests should confirm the economic relationship between the […]

Hedge Ratio

Hedge ratio is an accounting concept that defines the relation of value between a financial position, asset or liability and the hedging instrument meant to protect it against financial risk. For example, imagine a Eurozone company that signs a contract worth GBP1,000,000 for payment in six months’ time. To protect the company’s profits from a […]

Hedge Relationship

The hedge relationship is an accounting concept introduced by the hedge accounting standards and refers to the correlation between a company’s asset or liability and the financial derivative used to hedge the economic risk associated with it. This relationship is regulated by IFRS 9, which requires it to be highly effective in order to be […]

Hedged item

Hedged item is an accounting concept used in the IAS 39 and IFRS 9 accounting standards for recognition and measurement of financial instruments, that define the requirements of hedge accounting. As hedged item, the IFRS 9 defines any asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that poses […]

Hedging instrument

Hedging instrument is a general term that refers to all the financial instruments used by investors aiming to offset the potential changes in the fair value or cash flows of their hedged items. For instance, international companies that buy and sell products in currencies other than their functional currency are exposed to foreign exchange risk, […]

Hedging Strategy

A hedging strategy is a set of measures designed to minimise the risk of adverse movements in the value of assets or liabilities. Hedging strategies usually involve taking an offsetting position for the related asset or liability. Currency hedging is one of the most common hedging strategies. Companies operating internationally, who work with a range […]

Hedging-Strategien für Währungen

Durch Hedging-Strategien für Währungen sichern Sie sich bei Ihren Währungstransaktionen gegen die Risiken ab, die die Volatilität der Währungen mit sich bringt. Die Hauptmethode zur Absicherung gegen Währungsrisiken besteht in der Nutzung von Hedging-Produkten wie Währungsswaps, Forward-Verträgen und Optionen. Diese Produkte verhindern auf unterschiedliche Art und Weise, dass Ihr Geschäft von Wechselkursschwankungen beeinflusst wird. Hedging […]