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Hedge Accounting – Theory Questions

Theory Questions

1. Define a derivative instrument as per U.S. GAAP and as per IFRS.

2. What combination of underlying shares and options is permissible in hedge accounting?

3. Can options that are written qualify for hedge accounting?

4. Accounting standards do not permit hedge accounting for covered calls. What are the reasons for this prohibition?

5. What is the rationale behind the symmetry of risk reward requirements for hedge accounting?

6. What is the exception to the single fair value measure rule?

7. Is hedge accounting permitted for a delta neutral hedging strategy?

8. Enumerate the trade life cycle for ETOs that are used as a hedge for an underlying position both long calls and long puts.

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