CHAPTER 4
Cash Flow Hedges
About This Chapter
Cash flow hedges are designed to lock in variable (floating) future expected cash flows of an anticipated or forecasted transaction. To review, fair value hedges convert fixed cash flows on an existing asset, liability, or firm commitment to variable cash flows and protect the hedged item’s fair value. For cash flow hedges the opposite is true; the company takes inherently variable forecasted cash flows and converts them to fixed cash flows. Cash flow hedges are designed as a hedge of the variable cash flows from a forecasted transaction that is expected to occur in the future.
This chapter will discuss the use of cash flow hedges that companies can use to manage their risk exposure given the relative ...
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