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Accounting for Derivatives: Advanced Hedging under IFRS 9, 2nd Edition

Name: Accounting for Derivatives: Advanced Hedging under IFRS 9, 2nd Edition
Author: Juan Ramirez
ISBN: 9781118817971

by Juan Ramirez

March 2015

Intermediate to advanced

792 pages

23h 3m

English

Wiley

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Cover
Title Page
Copyright
Dedication
Preface
CHANGES TO THE PREVIOUS EDITION
Chapter 1: The Theoretical Framework – Recognition of Financial Instruments
1.1 ACCOUNTING CATEGORIES FOR FINANCIAL ASSETS1.2 THE AMORTISED COST CALCULATION: EFFECTIVE INTEREST RATE1.3 EXAMPLES OF ACCOUNTING FOR FIXED RATE BONDS1.4 ACCOUNTING CATEGORIES FOR FINANCIAL LIABILITIES1.5 THE FAIR VALUE OPTION1.6 HYBRID AND COMPOUND CONTRACTS
Chapter 2: The Theoretical Framework – Hedge Accounting
2.1 HEDGE ACCOUNTING – TYPES OF HEDGES2.2 TYPES OF HEDGES2.3 HEDGED ITEM CANDIDATES2.4 HEDGING INSTRUMENT CANDIDATES2.5 HEDGING RELATIONSHIP DOCUMENTATION2.6 HEDGE EFFECTIVENESS ASSESSMENT2.7 THE HYPOTHETICAL DERIVATIVE SIMPLIFICATION2.8 REBALANCING2.9 DISCONTINUATION OF HEDGE ACCOUNTING2.10 OPTIONS AND HEDGE ACCOUNTING2.11 FORWARDS AND HEDGE ACCOUNTING
Chapter 3: Fair Valuation – Credit and Debit Valuation Adjustments
3.1 FAIR VALUATION – OVERVIEW OF IFRS 133.2 CASE STUDY – CREDIT VALUATION ADJUSTMENT OF AN INTEREST RATE SWAP3.3 OVERNIGHT INDEX SWAP DISCOUNTING
Chapter 4: An Introduction to Derivative Instruments
4.1 FX FORWARDS4.2 INTEREST RATE SWAPS4.3 CROSS-CURRENCY SWAPS4.4 STANDARD (VANILLA) OPTIONS4.5 EXOTIC OPTIONS4.6 BARRIER OPTIONS4.7 RANGE ACCRUALS
Chapter 5: Hedging Foreign Exchange Risk
5.1 TYPES OF FOREIGN EXCHANGE EXPOSURE5.2 INTRODUCTORY DEFINITIONS5.3 SUMMARY OF IAS 21 TRANSLATION RATES5.4 FOREIGN CURRENCY TRANSACTIONS5.5 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH AN FX FORWARD (FORWARD ELEMENT INCLUDED IN HEDGING RELATIONSHIP)5.6 CASE STUDY: HEDGING A FORECAST SALE WITH AN FX FORWARD5.7 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A TUNNEL

5.8 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A PARTICIPATING FORWARD
5.9 CASE STUDY: HEDGING A HIGHLY EXPECTED FOREIGN SALE WITH A KNOCK-IN FORWARD (INTRODUCTION)5.10 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A KNOCK-IN FORWARD (SPLITTING ALTERNATIVE)
5.11 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A KNOCK-IN FORWARD (INSTRUMENT IN ITS ENTIRETY)
5.12 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A KNOCK-IN FORWARD (REBALANCING APPROACH)5.13 CASE STUDY: HEDGING A HIGHLY EXPECTED FOREIGN SALE WITH A KIKO FORWARD5.14 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A RANGE ACCRUAL (PART 1)5.15 CASE STUDY: HEDGING A FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A RANGE ACCRUAL (DESIGNATION IN ITS ENTIRETY)5.16 CASE STUDY: HEDGING FORECAST SALE AND SUBSEQUENT RECEIVABLE WITH A RANGE ACCRUAL (SPLITTING APPROACH)5.17 HEDGING ON A GROUP BASIS – THE TREASURY CENTRE CHALLENGE5.18 HEDGING FORECAST INTRAGROUP TRANSACTIONS
Chapter 6: Hedging Foreign Subsidiaries
6.1 STAND-ALONE VERSUS CONSOLIDATED FINANCIAL STATEMENTS6.2 THE TRANSLATION PROCESS6.3 THE TRANSLATION DIFFERENCES ACCOUNT6.4 SPECIAL ITEMS THAT ARE PART OF A NET INVESTMENT6.5 EFFECT OF MINORITY INTERESTS ON TRANSLATION DIFFERENCES6.6 HEDGING NET INVESTMENTS IN FOREIGN OPERATIONS6.7 CASE STUDY: ACCOUNTING FOR NET INVESTMENTS IN FOREIGN OPERATIONS6.8 CASE STUDY: NET INVESTMENT HEDGE WITH A FORWARD6.9 CASE STUDY: NET INVESTMENT HEDGE USING FOREIGN CURRENCY DEBT6.10 NET INVESTMENT HEDGING WITH CROSS-CURRENCY SWAPS
6.11 CASE STUDY: NET INVESTMENT HEDGE WITH A FLOATING-TO-FLOATING CROSS-CURRENCY SWAP
6.12 CASE STUDY: NET INVESTMENT HEDGE WITH A FIXED-TO-FIXED CROSS-CURRENCY SWAP6.13 CASE STUDY: HEDGING INTRAGROUP FOREIGN DIVIDENDS6.14 CASE STUDY: HEDGING FOREIGN SUBSIDIARY EARNINGS6.15 CASE STUDY: INTEGRAL HEDGING OF AN INVESTMENT IN A FOREIGN OPERATION
Chapter 7: Hedging Interest Rate Risk
7.1 COMMON INTEREST RATE HEDGING STRATEGIES7.2 SEPARATION OF EMBEDDED DERIVATIVES IN STRUCTURED DEBT INSTRUMENTS7.3 INTEREST ACCRUALS7.4 MOST COMMON INTEREST RATE DERIVATIVE INSTRUMENTS7.5 CASE STUDY: HEDGING A FLOATING RATE LIABILITY WITH AN INTEREST RATE SWAP7.6 CASE STUDY: HEDGING A FLOATING RATE LIABILITY WITH A ZERO-COST COLLAR7.7 IMPLICATIONS OF INTEREST ACCRUALS AND CREDIT SPREADS7.8 CASE STUDY: HEDGING A FIXED RATE LIABILITY WITH AN INTEREST RATE SWAP
7.9 CASE STUDY: HEDGING A FUTURE FIXED RATE ISSUANCE WITH AN INTEREST RATE SWAP
7.10 CASE STUDY: HEDGING A FUTURE FLOATING RATE ISSUANCE WITH AN INTEREST RATE SWAP7.11 CASE STUDY: HEDGING A FIXED RATE LIABILITY WITH A SWAP IN ARREARS7.12 CASE STUDY: HEDGING A FLOATING RATE LIABILITY WITH A KIKO COLLAR
Chapter 8: Hedging Foreign Currency Liabilities
8.1 CASE STUDY: HEDGING A FLOATING RATE FOREIGN CURRENCY LIABILITY WITH A RECEIVE-FLOATING PAY-FLOATING CROSS-CURRENCY SWAP8.2 CASE STUDY: HEDGING A FIXED RATE FOREIGN CURRENCY LIABILITY WITH A RECEIVE-FIXED PAY-FLOATING CROSS-CURRENCY SWAP
8.3 CASE STUDY: HEDGING A FLOATING RATE FOREIGN CURRENCY LIABILITY WITH A RECEIVE-FLOATING PAY-FIXED CROSS-CURRENCY SWAP
8.4 CASE STUDY: HEDGING A FIXED RATE FOREIGN CURRENCY LIABILITY WITH A RECEIVE-FIXED PAY-FIXED CROSS-CURRENCY SWAP
Chapter 9: Hedging Equity Risk
9.1 RECOGNITION OF EQUITY INVESTMENTS IN OTHER COMPANIES9.2 DEBT VERSUS EQUITY CLASSIFICATION OF OWN INSTRUMENTS9.3 HYBRID SECURITIES – PREFERENCE SHARES FROM AN ISSUER'S PERSPECTIVE9.4 CONVERTIBLE BONDS – ISSUER'S PERSPECTIVE9.5 CONVERTIBLE BONDS – INVESTOR'S PERSPECTIVE9.6 DERIVATIVES ON OWN EQUITY INSTRUMENTS9.7 CASE STUDY: ACCOUNTING FOR A STOCK LENDING TRANSACTION9.8 CASE STUDY: ACCOUNTING FOR A MANDATORY CONVERTIBLE BOND FROM AN ISSUER'S PERSPECTIVE9.9 CASE STUDY: ACCOUNTING FOR A CONVERTIBLE BOND FROM AN ISSUER'S PERSPECTIVE9.10 CASE STUDY: HEDGING STEP-UP CALLABLE PERPETUAL PREFERENCE SHARES9.11 CASE STUDY: BASE INSTRUMENTS LINKED TO DEBT INSTRUMENTS9.12 CASE STUDY: PARKING SHARES THROUGH A TOTAL RETURN SWAP9.13 CASE STUDY: HEDGING AN EQUITY INVESTMENT WITH A PUT OPTION9.14 CASE STUDY: SELLING A FORWARD ON OWN SHARES
Chapter 10: Hedging Stock-Based Compensation Plans
10.1 TYPES AND TERMINOLOGY OF STOCK-BASED COMPENSATION PLANS10.2 ACCOUNTING FOR EQUITY-BASED COMPENSATION PLANS10.3 CASE STUDY: ABC'S SHARE-BASED PLANS10.4 MAIN SOP/SAR HEDGING STRATEGIES10.5 CASE STUDY: HEDGING A STOCK OPTION PLAN WITH AN EQUITY SWAP10.6 CASE STUDY: HEDGING AN SAR PLAN WITH A CALL
Chapter 11: Hedging Commodity Risk
11.1 MAIN COMMODITY UNDERLYINGS11.2 LEASE, DERIVATIVE AND OWN-USE CONTRACTS11.3 CATEGORISATION ACCORDING TO SETTLEMENT TERMS11.4 CASE STUDY: HEDGING GOLD PRODUCTION WITH A FORWARD – OWN-USE APPLICATION11.5 CASE STUDY: RAISING FINANCING THROUGH A GOLD LOAN11.6 CASE STUDY: HEDGING A SILVER PURCHASE FIRM COMMITMENT WITH A FORWARD – FAIR VALUE HEDGE11.7 CASE STUDY: HEDGING COMMODITY INVENTORY WITH FUTURES11.8 CASE STUDY: HEDGING A HIGHLY EXPECTED PURCHASE OF OIL WITH FUTURES AND AN FX FORWARD – CASH FLOW HEDGE11.9 CASE STUDY: AIRLINE JET FUEL CONSUMPTION HEDGE WITH JET FUEL AND CRUDE OIL – RISK COMPONENT
Chapter 12: Hedging Inflation Risk
12.1 INFLATION MARKETS – MAIN PARTICIPANTS AND INDICES12.2 INFLATION-LINKED BONDS12.3 INFLATION DERIVATIVES12.4 INFLATION RISK UNDER IFRS 912.5 CASE STUDY: HEDGING REVENUES LINKED TO INFLATION12.6 MATCHING AN INFLATION-LINKED ASSET WITH A FLOATING RATE LIABILITY
Chapter 13: Hedge Accounting: A Double-Edged Sword
13.1 POSITIVE INFLUENCE ON THE PROFIT OR LOSS STATEMENT13.2 SUBSTANTIAL OPERATIONAL RESOURCES13.3 LIMITED ACCESS TO HEDGING ALTERNATIVES13.4 RISK OF REASSESSMENT OF HIGHLY PROBABLE TRANSACTIONS13.5 LOW COMPATIBILITY WITH PORTFOLIO HEDGING13.6 FINAL REMARKS
Index
End User License Agreement

Content preview from Accounting for Derivatives: Advanced Hedging under IFRS 9, 2nd Edition

Index

absolute value, option delta
accounting categories
1. financial assets
2. financial liabilities
accounting election, forward element
accounting entries
1. cross-currency swaps
2. fixed rate liabilities
3. floating rate liabilities
4. forecast sales
5. foreign subsidiary earnings
6. forward element
  1. changes through profit/loss
  2. excluded from hedging relationship
  3. in hedging relationship
7. forward points
  1. excluded from hedging relationship
  2. in hedging relationship
8. future fixed rate issuance
9. future floating rate issuance
10. FX forwards
11. hedge objective unchanged
12. KIKO collars
13. KIKO forwards
14. knock-in forwards
15. net investment hedges
16. range accrual forwards
17. risk management objective
  1. changes
  2. discontinuation
accounting implications
1. foreign subsidiaries
2. treasury centres
accounting mismatch, fair value option
accounting optimisation, knock-in forwards
accounting perspective, forecast sales
accounting policy, Ericsson group
accounts receivable see receivables
accrual range see range accrual forwards
accruals
1. cross-currency swaps
2. fixed rate liabilities
accrued interest
1. cross-currency swaps
2. interest rate swaps
acquisition date, translation process on
active markets, level financial instruments
actual forward element
actual funding, swaps in arrears
actual time value
1. see also time value
2. aligned time value
  1. greater than
  2. lower than
3. floating rate liabilities
4. hypothetical derivatives
5. KIKO collars
6. options
7. other comprehensive income
8. tunnels
administrative burden, FX forwards
Airbus Superjumbo
airlines ...

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Accounting for Derivatives: Advanced Hedging under IFRS 9, 2nd Edition

by Juan Ramirez

Index

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