Accounting for corporate finance: derivative contracts: specific derivatives
Accounting for specific derivatives
As explained at CFM13010 onwards, a number of financial risks can be managed through the use of derivatives. The two most common types of risk that you are likely to encounter are:
- foreign exchange risk
- interest rate risk.
This section of the guidance focuses on these two areas and assumes that these financial instruments are used for hedging purposes. Instruments used for speculative purposes are briefly considered at CFM24130.
The principal methods of hedging both foreign exchange and interest rate risks are:
- forward contracts
SSAP20 touches on accounting for foreign exchange forward contracts as outlined at CFM24120, but not on the other methods, or methods used to hedge interest rate risk.