Accounting Standards Update 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, modifies the accounting and reporting of foreign currency forward contract
hedges of recognized assets and liabilities denominated in a foreign currency.
* Foreign Currency Forward Contract
: On September 18, 2018, the Company entered into a foreign currency forward contract
in the amount of [euro]1.625 billion related to the anticipated cash portion of the purchase price of EHG.
The Service has ruled that a currency forward contract
in which the amount ultimately received would be determined by both intervening currency fluctuations and market interests rates was in fact a debt instrument for tax purposes.
-- The fair value of a foreign currency forward contract
will be affected by changes in the exchange rate, and the fair value of a put option for an available-for-sale security will be affected by changes in the fair value of the underlying security.
For example, assume a taxpayer undertakes to purchase a piece of equipment to be used in its trade or business and simultaneously enters into a foreign currency forward contract
(because the contract price was denominated in a foreign currency) to "fix" the price of the equipment in U.S.
This exposure can be mitigated through a foreign currency forward contract
For certain foreign currency derivatives, such as a foreign currency forward contract
However, for guidance on determining the fair value of a foreign currency forward contract
, CPAs should look to Statement no.
The proper treatment of foreign currency forward contract
hedges of assets and liabilities denominated in a foreign currency is not easily discernible from the examples provided in the relevant statements (SFAS 52, Foreign Currency Translation; SFAS 133, Accounting for Derivative Instruments and Hedging Activities; SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of SFAS 133; and SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities) or from the implementation guides from the FASB Derivatives Implementation Group (DIG).
All of Deutsche Bank's currency-hedged ETFs are fully hedged with currency forward contracts
, as is the WisdomTree fund.
By investing in their related unhedged, parent iShares ETFs (EFA, EWG and EWJ) and implementing foreign currency forward contracts
, iShares Currency Hedged ETFs provide an easy and cost-effective way to mitigate unwanted currency risk.