Matching Key Terms—Hedging and Derivatives
Match the items in the left-hand column with the descriptions/explanations in the right-hand column.
Items |
| Descriptions/Explanations | |
1. | Put option | A. | Hedge of the exposure to changes in the fair value of a recognized |
2. | Notional amount |
| asset or liability or an unrecognized firm commitment. |
3. | Intrinsic value | B. | Hedge of the exposure to variable cash flows of a forecasted |
4. | Underlying |
| transaction. |
5. | Gains or losses on | C. | Derivative instrument that is part of a host contract. |
| cash flow hedges | D. | Specified interest rate, security price, or other variable. |
6. | Foreign currency | E. | Number of currency units, shares, bushels, or other units |
| hedge |
| specified in the contract. |
7. | Fair value hedge | F. | Recognized in current earnings in the period of the |
8. | Call option |
| change in value. |
9. | Effectiveness | G. | Recognized in Other Comprehensive Income in the period of |
10. | Time value |
| the change in value. |
11. | Gains or losses on | H. | Measure of the extent to which the derivative offsets the |
| fair value hedges |
| changes in the fair values or cash flows of the hedged item. |
12. | Cash flow hedge | I. | Hedge of the net investment in foreign operations. |
13. | Interest rate swap | J. | Conversion of a company’s fixed-rate debt to a variable-rate debt. |
14. | Bifurcation | K. | Option that provides the right to acquire an underlying at an |
15. | Embedded |
| exercise or strike price. |
| derivative | L. | Option that provides the right to sell an underlying at an exercise |
|
|
| or strike price. |
|
| M. | Value of an option due to the spread between the current market |
|
|
| price of the hedged item and the option’s strike price. |
|
| N. | Value of an option due to the opportunity to exercise the option |
|
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| over the term of the option period. |
|
| O. | Process of separating the value of an embedded derivative from |
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| its host contract. |
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