[Anonymous]

So I get that for cash flow hedges and for foreign currency cash flow hedges that for gains/losses the effective portion goes to OCI and the ineffective portion goes to earnings. My trouble is that Gearty mentions in the lecture that later the OCI portion goes to earnings but doesn’t bother to elaborate. When/how does that happen. Is it amortized over time or reclassified as a lump? Furthermore, anybody have any thoughts on how this might be tested on the Exam? (ie conceptual multiple choice or actual quantitative problem) I think I understand it enough for a couple of conceptual multiple choice, but there is just no way I’m coming out on top of a real quantitative question. If anyone thinks that I could see a “real” problem on this, does anyone know where I could learn a little more about it? (I do recognize that this probably won’t be more than a couple of points, but I don’t want to just give up on any available points.) Thanks.

[Anonymous]

Also, anybody have any experience getting a big nasty hedging problem on a sim?

[Anonymous]

Also, anybody have any experience getting a big nasty hedging problem on a sim?

[M.O.D.]

The purpose of the cash flow hedge is to counteract/offset a loss on a future transaction. So during the hedge period, the hedge gain or loss goes to OCI, but when the transaction is completed, the hedge profit (or loss) is reclassified to earnings. This hedge gain is necessary in earnings to offset the loss on the transaction in earnings.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[M.O.D.]

The purpose of the cash flow hedge is to counteract/offset a loss on a future transaction. So during the hedge period, the hedge gain or loss goes to OCI, but when the transaction is completed, the hedge profit (or loss) is reclassified to earnings. This hedge gain is necessary in earnings to offset the loss on the transaction in earnings.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

That makes perfect sense. Thanks a bunch MOD.

[Anonymous]

That makes perfect sense. Thanks a bunch MOD.

[Author]

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