Problem

Matching Key Terms—Hedging and DerivativesMatch the items in the left-hand column with the...

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
			over the term of the option period.
		O.	Process of separating the value of an embedded derivative from
			its host contract.