Hedging on Foreign Currencies
28 August 2008
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Dear friends,
it happens that I am an employee of a manufacturing company who is making hedging for foreing currencies transactions.
Do you happen to have documentation on the bookings that I have to make in the balance sheet/profit&loss account?
With a specific example: spot exchange rate, forward exchange rate, what I should book as P&L gain/loss and in B/S as payables/receivables?
Thank you.
Adrian Mitranus
First question: Is the hedging done to cover up for risks related to the purchase of goods or as a financial instrument?
Jorge,
90% is made to cover risks related to purchase of goods.
10% related to financials , let say a loan in foreign currency for which we should cover.
Thanks.
90% is made to cover risks related to purchase of goods.
10% related to financials , let say a loan in foreign currency for which we should cover.
Thanks.
You record the purchases in FX against the hedging rate, if there is a remainder that is not covered, that is recorded against the current spot rate. There will be no gain or loss, since the hedging will fix the payable against the hedging rate. Only gains or loss will be recorded on the part not hedged (remainder of a transaction), the gain loss will be the difference between the spot rate at transaction date and the spot rate at date of paying the creditor.
Kind regards,
Henk Oonk
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