• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

hedging

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › hedging

  • This topic has 4 replies, 3 voices, and was last updated 13 years ago by nokia.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • December 6, 2011 at 8:25 pm #50959
    warrioroflight
    Member
    • Topics: 3
    • Replies: 17
    • ☆

    Hi
    What is the exact difference between a cash flow hedge and a fair value hedge? in bpp book, in an example a future contract for hedging purchase of certain item of inventory was taken as fair value hedge.isn’t it that raw material etc hedges are considered to be cash flow hedge instead of fair value?

    December 8, 2011 at 12:51 pm #91093
    anumohan
    Member
    • Topics: 15
    • Replies: 9
    • ☆

    i dont think it states it in particular in IAS39 but it makes sense as raw materials are affecting the cash flow – i know there is an instant pair/ match off in FV hedge (loss on risk is matched with gain on the derivative) and this is not the case in cash flow hedge as there is no match in the current period. CF Hedge covers the risk of changes in cash flow while FV Hedge covers the risk in changes in asset/liab – i saw this question Artwright from Dec-04 that covers this topic 🙂

    December 9, 2011 at 6:37 pm #91094
    warrioroflight
    Member
    • Topics: 3
    • Replies: 17
    • ☆

    hmmm….alright thanks.but i still think there may be something else too.anyway its useless worrying about it now.

    December 19, 2011 at 4:34 am #91095
    nokia
    Member
    • Topics: 1
    • Replies: 63
    • ☆☆

    There are 3 types of hedge items..

    1) Recognised assets, Liabilities
    2) Firm commitment
    3) Forecast transaction

    Fair value hedge is appied to the exposure of change in fair value of recognised asset/liability or Firm commitment

    And cash flow hedge is applied to variability in cash flow of a recognised asset/liability or highly probable forecast transaction..!!

    And as an exception hedge of a foreign currency risk of firm commitment may be accounted for as a cash flow hedge or a fair value hedge

    In your example there is firm commitment and as there is no exposure to variability in cash flow as the contract has been finalised there is just a risk of change in fair value of the hedge item(material) thats why it is a fair value hedge

    December 19, 2011 at 4:39 am #91096
    nokia
    Member
    • Topics: 1
    • Replies: 63
    • ☆☆

    A useful way to remember its logic is a rule of thumb which i found after lots of research

    If asset/liability is not being settled but still cash flows are being changed (Like variable rate borrowing) then it is a cash flow hedge

    If asset/liability is not being settled and cash flows are also not being changed (Like fixed rate borrowing) then it is a fair value hedge

  • Author
    Posts
Viewing 5 posts - 1 through 5 (of 5 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • RashidMh on MA Chapter 1 Questions Accounting for Management
  • John Moffat on Relevant Cash Flows for DCF Relevant Costs (example 1) – ACCA Financial Management (FM)
  • John Moffat on Accounting for Management – ACCA Management Accounting (MA)
  • Hsaini on Accounting for Management – ACCA Management Accounting (MA)
  • kennedyavege@2023 on Relevant Cash Flows for DCF Relevant Costs (example 1) – ACCA Financial Management (FM)

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in