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Fair value hedging, between opportunity and necessity

Author

Listed:
  • Daniela SAHLIAN

    (Bucharest University of Economic Studies)

  • Mihaela BOTEA

    (Bucharest University of Economic Studies)

  • Daniela Livia TRAŞCĂ

    (Bucharest University of Economic Studies)

Abstract

In the actual worldwide context the exposure of companies to various financial risks increased and the consequences are much worst than 10 years ago. That’s why hedging accounting has become a necessity. Derivative operations can be used to hedge: interest rate risks, foreign currency exchange rate risks, credit risks. Derivatives used to hedge these risks can be handled to cover fair value exposure, cash flow exposure and exposure to changes in the value of a net investment in a foreign operation. This paper proposes two models for fair value risk hedging using derivatives. Both examples are based on IAS 39, some of the most controversial accounting standards of the day. The proposed solutions can be used by the experts interested in applying hedging accounting in order to manage this particular type of risk and to limit the negative consequences of companies’ performances.

Suggested Citation

  • Daniela SAHLIAN & Mihaela BOTEA & Daniela Livia TRAŞCĂ, 2013. "Fair value hedging, between opportunity and necessity," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(12(589)), pages 97-104, December.
    • Handle: RePEc:agr:journl:v:xx:y:2013:i:12(589):p:97-104
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