Foreign Currency Hedge
The new requirements will allow a company to designate a derivative as a hedge of the foreign currency exposure of–
* an unrecognized firm commitment (a foreign currency fair value hedge),
* an available-for-sale security (a foreign currency fair value hedge),
* a forecasted transaction (a foreign currency cash flow hedge), or
* a net investment of a foreign operation.
Fair value hedge accounting may be used for derivatives that are hedging the foreign currency exposure of an unrecognized firm commitment or available-for-sale security if all the fair value hedge criteria are met. Cash flow hedge accounting may be used for those derivatives hedging the foreign currency exposure of a forecasted transaction if all the cash flow hedge criteria are met and the hedging instrument hedges the foreign currency exposure to variability in the functional currency-equivalent cash flows associated with either a forecasted foreign currency-denominated transaction or a forecasted intercompany foreign currency-denominated transaction.
The foreign currency exposure of a net investment in a foreign operation results in translation gains and losses. These translation gains and losses are included in other comprehensive income (outside of earnings) and reported in equity. Losses and gains on derivatives and nonderivative instruments that hedge this foreign currency exposure are also included in other comprehensive income and reported in equity to the extent the hedging instrument is an effective economic hedge.