Posts Tagged ‘hedge effectiveness’

Conflicting Messages: Death of Short Cut vs Death of Quantitative Assessment

While many will commend the FASB for mandating measurement in all circumstances, it seems odd to go the other direction by eliminating the highly effective criteria under the current quantitative assessment requirement. The FASB states that “eliminating the shortcut method and the critical terms match method would result in a more consistent model for assessing hedge effectiveness.”

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When Opposites Distract – FASB and IASB

When the FASB and the IASB started talking about the convergence of accounting standards back in 2006, the road map was pretty optimistic. Now the path to convergence is clearly widened further. No doubt its exposure draft issuance will coincide with the holiday period with comments due by September, so don’t forgot your laptop when your pack your suitcase.

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Hypothetical Derivatives and Currency Basis

Since FAS 133 was introduced nearly a decade ago and IAS 39 was introduced over five years ago, we continue to see differing interpretations of these standards being applied in the marketplace. A good example of this is the application of currency basis on Cross Currency Interest Rate Swaps (“CCIRS”) for effectiveness testing.

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Bad Credit = No Hedging?

The last few years have proven to be extremely challenging for companies issuing debt. Even if a company was lucky enough to find a bank willing to underwrite an issue, the pricing was prohibitive and issuers needed a pragmatic approach. One of the practical ways to get pricing to achieve reasonable levels was to embed credit-contingent features in the deals that would trigger higher coupon payments with the expectation that credit ratings (read credit spreads) widen in the future.

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