Hedging

Hi sir/s

I have a question from Kaplan study text:

“In January Grayton, whose functional currency is the dollar, decided that it was highly probable that it would buy an item of plant in one year’s time for KR 200,000. As a result of being risk averse, it wished to hedge the risk that the cost of buying KRs would rise and so entered into a forward rate agreement to buy KR 200,000 in one year’s time for the fixed sum of $100,000. The fair value of this contract at inception was zero and it was designated as a hedging instrument.

At Grayton’s reporting date of 31 July, the KR had depreciated and the value of KR 200,000 was $90,000. The fair value of the derivative had declined by $10,000. These values remained unchanged until the plant was purchased.

HOW SHOULD THIS BE ACCOUNTED FOR?”

When I read this question I initially thought it was a fair value hedge, accounted for through profit or loss, because Grayton was hedging the movement in the fair value of KR currency. However the answer says it’s a cash flow hedge, and I don’t understand why? I know Grayton is planning to purchase a non-financial item, but that affects the gain or loss in equity. How can I tell from a question if it’s a cash flow hedge or fair value hedge if not specified in the question?