cash flow hedge
- A type of hedge defined by FAS 133. An entity may designate a derivative instrument as hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. That exposure may be associated with a recognized asset or liability such as all or some of the future interest payments due for a variable-rate debt. Alternatively, that exposure may be associated with a forecasted transaction such as a planned purchase or sale. Certain requirements must be met to qualify for cash flow hedge accounting. Gains or losses from the effective portion of a derivative used for a qualifying cash flow hedge are reported in comprehensive income. In other words, the gains and losses are used to adjust equity but are not included in income or losses from operations. Gains or losses from the ineffective portion of hedges must be reflected in earnings.
Financial and business terms. 2012.
Look at other dictionaries:
Cash flow hedge — A cash flow hedge is a hedge of the exposure to the variability of cash flow that # is attributable to a particular risk associated with a recognized asset or liability. Such as all or some future interest payments on variable rate debt or a… … Wikipedia
Cash flow — For other uses, see Cash flow (disambiguation). Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · … Wikipedia
Hedge (finance) — For other uses, see Hedge (disambiguation). Finance Financial markets … Wikipedia
hedge effectiveness — The extent to which a hedge transaction results in the offsetting changes in value or cash flow that the transaction was and is intended to provide. FAS 133 requires users to regularly assess the effectiveness of hedges. Furthermore, under FAS… … Financial and business terms
hedge ratio — The relationship between the number of contracts required for a direct hedge and the number of contracts required to hedge in a specific situation. The concept of hedging is to match the size of a positive cash flow from a gaining futures… … Financial and business terms
Cash Neutral — An investment strategy strategy that requires no net cash in order to enter perform the transaction. In general, cash neutral strategies require simultaneous buying and (short) selling of instruments. These strategies are popular with hedge funds … Investment dictionary
Hedge fund — A hedge fund is a private investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment funds and which pays a performance fee to its investment manager.… … Wikipedia
Foreign exchange hedge — A way for companies to eliminate foreign exchange (FOREX) risk when dealing in foreign currencies. This can be done using either the cash flow or the fair value method. The accounting rules for this are addressed by both the International… … Wikipedia
Demand flow technology — (DFT) is a strategy to define and deploy business processes in a flow, driven in response to customer demand. DFT is based on a set of applied mathematical tools that are used to connect processes in a flow and link it to daily changes in demand … Wikipedia
FAS 133 — Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities. A rule promulgated by the AICPA that establishes accounting and reporting standards for derivative instruments. The scope of the… … Financial and business terms