FRAS

Hedging Solutions: Managing profit volatility

In recent weeks the US Dollar has strengthen sharply against major currencies, resulting in shrinking operating margins for companies with foreign currency borrowings and payables.

This has also had a positive effect on exporters, who benefit from higher realisations. However, Companies do not favour volatility and to avoid any lasting impact on earnings that may be triggered by such forex movements, different risk management strategies can be adopted including the use of derivatives to hedge such risks.

While Companies enter into such contracts to mitigate the volatility, the accounting for derivatives (which requires the mark to market gains/losses to be recognised in P&L) introduces volatility in the P&L. To insulate the P&L from effects of hedging strategies, Companies can adopt hedge accounting to reflect the economic impact of hedging transactions in accounting in the right manner at the right time!

Our team of hedge accounting experts at can help you devise smart accounting solutions to align the risks and returns arising from such hedging strategies and retain them outside income statement, until the hedged transaction occurs.

Read the full guide
Download PDF [ 1540 kb ]