[Anonymous]

Struggling through a review of hedge accounting at the moment. Is there any hard and fast rule when to use spot rate vs forward rate for valuation purposes? Thanks!

[carpeCPA]

Wish I hand an answer for you. I'm struggling with this too and hope someone has an awesome tip for this

REG - 93 (Jul'13)
FAR - 97 (Dec '13)
AUD - 99 (May '14)
BEC - Jul '14

Becker Self Study/Ninja Notes/Ninja Audio/Ninja MCQ/Wiley Test Bank/Wiley Book

[carpeCPA]

Wish I hand an answer for you. I'm struggling with this too and hope someone has an awesome tip for this

REG - 93 (Jul'13)
FAR - 97 (Dec '13)
AUD - 99 (May '14)
BEC - Jul '14

Becker Self Study/Ninja Notes/Ninja Audio/Ninja MCQ/Wiley Test Bank/Wiley Book

[NYCaccountant]

Use the spot rate for receivables and payables. Use the forward rate for forward exchange contracts or futures contracts. Basically, I bought some equipment from a foreign supplier and I don't have to pay until 3 months from now. To hedge the risk of the exchange rate increasing over that time period, I'll enter into a forward exchange contract to buy a set amount of currency at a set price 3 months from now. I'll use the spot rate for the payable related to the equipment and use the forward rate for the forward exchange contract. Reason being that I am predicting in 3 months the currency will be worth more assuming a rise in exchange rates, but I'm going to pay less for it because the agreement I entered into locked in the price I'll pay. So basically, It would cost me more US dollars to buy the equipment at the end of the 3 month period assuming I'm buying the foreign currency straight up, but because I already hedged the payable, and am able to buy the currency at a cheaper price, I would have successfully hedged my payable.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

Use the spot rate for receivables and payables. Use the forward rate for forward exchange contracts or futures contracts. Basically, I bought some equipment from a foreign supplier and I don't have to pay until 3 months from now. To hedge the risk of the exchange rate increasing over that time period, I'll enter into a forward exchange contract to buy a set amount of currency at a set price 3 months from now. I'll use the spot rate for the payable related to the equipment and use the forward rate for the forward exchange contract. Reason being that I am predicting in 3 months the currency will be worth more assuming a rise in exchange rates, but I'm going to pay less for it because the agreement I entered into locked in the price I'll pay. So basically, It would cost me more US dollars to buy the equipment at the end of the 3 month period assuming I'm buying the foreign currency straight up, but because I already hedged the payable, and am able to buy the currency at a cheaper price, I would have successfully hedged my payable.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Author]

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