GAAP Policies and Procedures, Second Edition

Chapter 3. Short-Term Investments and Financial Instruments

Definitions of Terms		37
Concepts and Examples		37
	Fair Value Hedges	37
	Cash Flow Hedges	38
	Foreign Currency Hedges	39
Policies		40
	Hedges—General	40
Controls		40
	Hedges—General	40
	Fair Value Hedges	40
	Cash Flow Hedges	41
Footnotes		41
	Short-Term Investments	41
	Restricted Short-Term Investments	42
	Disclosure of Objectives for Derivative Use	42
	Valuation of Financial Instruments	43
	Hedging of Foreign Operation Investment	43
Recordkeeping		43

Definitions of Terms

 

cash flow hedge

The use of an offsetting cash flow from a hedging instrument to reduce the uncertainty of future cash flows.

derivative

A financial instrument whose fair value is based on changes in a benchmark. It is frequently used as a hedging instrument to offset changes in the fair value of hedged items. Examples of derivatives are interest rate caps and floors, option contracts, letters of credit, swaps, and futures.

fair value hedge

A hedge designed to protect the fair value of an asset.

financial instrument

A contract to exchange cash or other financial instruments between entities, or an ownership interest in another entity, or cash.

forecasted transaction

An expected transaction that has not yet occurred, and for which there is no final commitment.

foreign currency hedge

A hedge designed to protect against future fluctuations in the value of an investment denominated in a foreign currency.

hedge

The act of protecting oneself against potentially unfavorable pricing changes, usually by financing an ...