[Will_it_ever_end]

Can someone please explain to me the difference between a cash flow hedge and a fair value hedge. I have memorized where they go on the financials but don’t understand them. No need to go in detail, just give me an example of why I would have a fair value hedge and why I would have a cash flow hedge.

Thanks. Not sure what I would do without this forum.

REG 97, FAR 69,82, AUD 80, BEC 71, 81 - It finally ended!!

[strider4216]

I believe a cash flow hedge is just hedging your risk of losing cash flow…and a fair value hedge is like buying a put option on a stock you own..you hedge the risk of excessive volatility by having interest in gains and losses….don't worry too much about it for the exam because if they test on derivatives it will most likely be about stock options, or it will be something like Joe bought 10,000 pounds of sugar and futures contracts for blah blah, then calculate his gain or loss…just know that EFFECTIVE cash flow hedges go on OCI and the non effective portion goes in I/S.

[Will_it_ever_end]

Thanks Strider

REG 97, FAR 69,82, AUD 80, BEC 71, 81 - It finally ended!!

[75 CPA]

edit – I know you were being helpful, but no posting of copyrighted handouts, please.

-Jeff

[Author]

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