Fill in the blank with the proper treatment for these hedging situations using d

Question

Fill in the blank with the proper treatment for these hedging situations using derivative instruments. (Use FV for fair value hedge, CF for cash flow hedge and FC for foreign currency hedge)

1. Hedging owned inventory                                                                        

2. hedging a planned future inventory purchase                                     

3. hedging a firm commitment to purchase inventory                          

4. hedging a planned future sale of inventory                                         

5. hedging a firm commitment to sell inventory                                     

6. hedging fixed interest rate debt                                                             

7. hedging variable interest rate debt                                                        

8. hedging a bond investment in fixed rate debt                                    

9. hedging a bond investment in variable rate debt                              

10. hedging the net investment in a foreign subsidiary                         

Explanation / Answer

1. Hedging owned inventory -- FV

2. hedging a planned future inventory purchase -- CF

3. hedging a firm commitment to purchase inventory --FV

4. hedging a planned future sale of inventory --CF   

5. hedging a firm commitment to sell inventory --FV

6. hedging fixed interest rate debt --FV   

7. hedging variable interest rate debt --CF   

8. hedging a bond investment in fixed rate debt --FV   

9. hedging a bond investment in variable rate debt --CF

10. hedging the net investment in a foreign subsidiary --FC

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