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firm commitment hedging

Forums › Ask CIMA Tutor Forums › Ask CIMA F3 Tutor Forums › firm commitment hedging

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  • February 21, 2018 at 3:19 pm #438247
    edit
    Member
    • Topics: 25
    • Replies: 21
    • ☆

    Dear Sir,

    I can’t get my head around firm commitment hedging being fair value hedging. In my head if we have a firm commitment it means we will have future cash flow, thus it should be cash flow hedging.

    Would you please put me right and give me some real life example?

    thanks

    February 21, 2018 at 9:35 pm #438281
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7141
    • ☆☆☆☆☆

    Hi,

    Cash flow hedges are when we have a highly probable future cash flow, which is slightly different to a firm commitment as this is where the transaction is virtually certain to occur.

    Thanks

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