Basic Accounting Knowledge: Hedging Series

Hedging

It means enterprise To avoid foreign exchange risk, interest rate risk, commodity price risk, stock risk, credit risk and so on, specify one or more hedging tools, so that the change of fair value or cash flow of hedging instruments will offset the change of fair value or cash flow of all or part of the hedging items.

Fair value hedging

It means a confirmed commitment to assets or liabilities, unconfirmed commitments, or assets or liabilities. Not yet The hedging of the fair value change risk of the identified part of the confirmation commitment. This type of value change stems from a specific risk and will affect the profits and losses of enterprises.

Cash flow hedging

It refers to the hedging of the risk of cash flow change. This type of cash flow originates from recognised assets or liabilities. Probably A specific risk arising from the expected transaction will affect the profit and loss of the business.

Determination of commitment

It refers to a legally binding agreement to exchange specific quantities of resources at agreed prices in a specified date or period in the future.

LIBOR

It is the abbreviation of the London Interbank Offered Rate. It is the analysis of interest rates quoted by more than ten international first-class banks.