For purposes of the regulations, a hedging
transaction is a transaction entered into to reduce the risk of price changes or currency fluctuations with respect to ordinary income property, or to reduce the risk of interest rate or price changes or currency fluctuations with respect to borrowings or ordinary obligations.
In short, if you engage in or are contemplating entering into hedging
and financial risk management programs, get to know both the current rules and the FASB's possible changes.
Experienced companies have devised other hedging
strategies--some simple, some sophisticated--for the same products.
An alternative is mark-to-market hedge accounting, under which you measure both the hedging
instrument and the hedged item at market value, recognizing the resulting net gains or losses in income each reporting period (no net gain or loss would be recognized if the hedge is perfect).
To attain beneficial treatment for hedging
transactions entered into after December 31, 1993, taxpayers must identify the transactions (in their books and records) before the close of the day the transaction is entered into.
Supreme Court's ruling in Arkansas Best, the IRS long has acknowledged incentory hedging
creates ordinary losses because (1) it assures ordinary operating profits and (2) it is "common trade practice" and therefore regarded as a form of insurance and not a capital asset transaction.
The required characteristics vary with the hedging
A number of firms recognized that non-derivative hedging
techniques can also be highly effective.
Although an exception is provided for hedging
transactions, it applies only to transactions that have been timely and properly identified for tax purposes.
Thank you for the opportunity to discuss the proposed consolidated group hedging
regulations(1) and, in particular, issues arising in connection with proposals from commentators (including TEI) to apply those regulations on a retroactive basis.
German Bundesbank president tietmeyer, chairman of the G-10 governors, indicated that the governors viewed recent bond market developments to some extent as a reflection of previous overshooting and indicated that they did not see the need for new regulations on derivatives and hedging
Companies can set hedging
and issuance guidelines around this number that can be clearly and easily communicated.