Discover the Details of FX Hedge Documentation

When accounting for FX derivatives, firms have a choice between the “default” and “elective” accounting treatment. Elective accounting treatment is not required and involves extra preparation and utilization of resources, but for forecasted transactions and hedges of net investments in foreign operations, the benefits can outweigh the costs particularly for publicly traded firms most concerned with mitigating periodic earnings volatility.

The “elective” accounting treatment permits special accounting for items designated as being hedged and offers 2 main financial reporting benefits; Timing & Geography: (1) timing refers to reducing periodic earnings volatility by deferring derivative mark-to-market gains and losses in equity and (2) geography refers to accounting for the derivative gain or loss in the same geographic area of the financial statements as the hedged exposure.

It is important to emphasize that elective hedge accounting never changes the economics of a hedge, only the financial reporting. The choice of whether or not to use “elective” accounting treatment will depend on the foreign exchange risk management objectives of each organization, and part of the strategic decision making process involves determining if the financial reporting benefits outweigh the administrative and compliance costs.

To satisfy the requirement for elective accounting treatment, companies must prepare formal contemporaneous hedge documentation at the inception of the hedge. The hedge documentation outlines the hedging relationship, and the entity's risk management objective and strategy for undertaking the hedge, including identification of following 5 components:

1. The hedging instrument
2. The hedged item or transaction
3. The nature of the risk being hedged
4. The method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness
5. The method that will be used to measure ineffectiveness

Effectiveness is an assessment of the degree by which the derivative offsets the hedged transactions changes in cash flows that are attributable to foreign exchange risk. While hedge documentation and effectiveness testing can range significantly in detail and complexity, two simplified examples of hedge documentation are addressed in FX Initiative’s currency risk management training.

Our Hedging FX Transactions and Hedging Foreign Subsidiaries courses walk you through real world scenarios using Apple, Inc. as an example, and show you the required documentation as well as the timing and geography benefits using our FX Transaction Simulator and Foreign Subsidiary Consolidator. Hedging documentation can be daunting, but our training makes preparation practical so you can achieve for your foreign exchange risk management goals.

Are you interested in discovering the details of FX hedge documentation? Take the FX Initiative by subscribing today!

Cheers,

The FX Initiative Team
support@fxinitiative.com

Learn Best Practice Accounting for FX Derivatives

Foreign exchange accounting is a complex area of financial reporting that many global organizations struggle with. Adding to that complexity, companies engaged in foreign exchange risk management must also learn how to account for currency derivatives. While the specific accounting rules differ between generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), the fundamental concepts are essential to understand when implementing foreign exchange risk management best practices for your international business.

Companies that hedge foreign exchange risk often have two main objectives: (1) To minimize the Income Statement impact of fluctuating foreign exchange rates, and (2) to reduce the variability in functional currency equivalent cash flows resulting from foreign currency transactions. In order to achieve the objective of minimizing the Income Statement impact of fluctuating foreign exchange rates, it is important to first consider the accounting treatment for the underlying position, and then to align the accounting treatment for the FX derivative accordingly.

At the highest level, companies can account for FX derivatives using “default” accounting treatment or “elective” accounting treatment. The “default accounting treatment requires that derivative gains and losses should be recorded in earnings on a current basis based on changes in their fair market value. The “elective” accounting treatment permits special accounting that results in changes in the fair value of the derivative to be recorded in the equity section of the balance sheet (rather than earnings) as part of other comprehensive income and then reclassified from the balance sheet to the income statement in the period or periods in which the underlying hedged item impacts consolidated earnings.

While the rules of elective accounting treatment can get quite complex, the key take away is that elective accounting treatment provides financial reporting benefits when hedging underlying exposures that do not impact the income statement on a current basis, such as forecasted transactions. Therefore, firms have a choice between the “default” and “elective” accounting treatment. FX Initiative’s currency risk management training addresses several variables to consider when choosing the most appropriate course of action for FX derivative accounting.

If you are interested in learning more about accounting for FX derivatives, FX Initiative’s currency risk management training walks you through real-world scenarios using Apple as an example. Specifically, we cover hedging forecasted revenue transactions, booked receivable transactions, and net investments in foreign subsidiaries using both elective and default accounting treatment. Learning how to account for FX derivatives is critical in order to achieve your foreign exchange risk management objectives. Start learning today by taking the FX Initiative!

Are you ready to learn best practice accounting for FX derivatives? Click here to take the FX Initiative!

Cheers,

The FX Initiative Team
support@fxinitiative.com

Download the PDF Brochure to learn about FX Initiative!

Are you curious how FX Initiative can help you with currency risk management? Download the PDF brochure and learn why Fortune 500 companies, small and medium sized enterprises (SME), and sales teams of financial institutions trust FX Initiative to learn foreign exchange best practices.

For over a decade, we’ve been training Fortune 500 companies, global businesses, treasury professionals, and FX sales teams on foreign exchange risk management best practices. While all client’s had different objectives and challenges, all benefited from the unparalleled foreign exchange (FX) and continuing professional education (CPE) resources FX Initiative’s currency risk management training provides created by industry expert & trainer Evan Mahoney, CPA. Whether you’re new to foreign exchange or a seasoned professional, your questions will be answered, your challenges will be addressed, and you will leave with an actionable plan for managing currency risk.

Download the PDF Brochure

Self-Study currency risk management training with Evan Mahoney is the gold standard for meeting your organization’s professional development needs. Live webinar sessions that are fully customized can be added to enhance your learning experience and address and solve company specific challenges. Evan has a passion for teaching that shines through in his recorded presentations and live events alike. Evan’s training is so effective that over 90% of trainees went from scoring less than <70% on the Pre-Training Evaluation to earning a perfect 100% score post-training. Not only does this show the growth in knowledge each student experiences, but it leaves a lasting foundation of information to access daily. Our best source of new clients comes from satisfied customers that have benefited directly from our Currency Risk Management Training. You can take full advantage by combining self-study training and customized live webinars to ensure your organization has the resources needed to optimize and mitigate FX risk. Our training is accessible globally and available around the clock to meet your needs.

Evan Mahoney has over a decade of foreign exchange experience, and has helped hundreds of companies identify, assess, and mitigate foreign exchange risk. Evan’s strong finance and accounting background offers a unique skill set for solving technical strategy, policy, and financial reporting challenges in a manner that allows clients to understand and address their currency risk management issues at hand. Evan is an experienced practitioner and established thought leader available to service your organizations’ ongoing currency risk management training and professional development needs. Want to discuss Currency Risk Management Training with Evan Mahoney? Call 312-566-7475 or email evan.mahoney@fxinitiative.com today!

Ready to take the FX Initiative? Click here to get started!

Cheers,

The FX Initiative Team
support@fxinitiative.com

Check Your FX Knowledge: Take Our Pre-Test Evaluation

Are you a foreign exchange expert? Take the FX pre-test evaluation to see how you perform using our scoring brackets!

Whether you’re an experienced professional or brand new to foreign exchange, FX Initiative’s Currency Risk Management Training helps you learn currency risk management best practices using a video based on-demand format with real-world examples. Complete your FX training today in 4 simple steps:

1. Select Your FX Risk Management Training Program
2. Complete Your FX Risk Management Training Education
3. Track Your FX Risk Management Training Progress
4. Download Your Certificate of Completion

Ready to take the FX Initiative? Click here to get started!

Cheers,

The FX Initiative Team
support@fxinitiative.com

The Art & Science of FX Risk Management

FX risk management can be viewed as both an art and science. This means that the results of currency risk management practices can be measured quantitively like a science, but determining what constitutes good or bad results requires qualitative analysis like an art. There is no single prescription for managing foreign exchange risk, and each organization must decide their risk management objectives, as well as the best approach towards achieving those objectives.

An excellent example of this concept is a Foreign Exchange (FX) Risk Management Policy. A formal written FX Risk Management Policy lays out a plan with clear parameters and guidelines for managing foreign exchange risk across the enterprise. However, the specific strategies for hedging specific exposures often requires subjective day-to-day judgment that falls outside the scope of the master Policy. As a result, treasury staff of multinational corporations typically know what they are trying to achieve, but struggle with how to achieve it.

FX Initiative's Currency Risk Management Training addresses both the quantitive science and qualitative art of FX risk management. From drafting a formal Policy using our FX Risk Policy Drafter to modeling real world scenarios using our FX Transaction Simulator, our training walks you through common approaches to goal setting and then shows you how to achieve those goals using derivative insturments. The ideas that are discussed will help you see how a world-class organization such as Apple is able to set high level objectives as evidenced in their 10-K, and then accomplish those objectives using the judgement of their highly trained personnel.

If you are interested in learning the benefits of training your personnel on both the high level objective goal setting and day-to-day subjective decision making involved in foreign exchange risk management, sign up and take the FX Initiative today. You can use our FX Risk Policy Drafter to create a formal written policy, and then leverage our FX Transaction Simulator to customize specific variables that reflect your actual exposures to determine if you are able to achieve the FX hedging objectives you desire. Our video based curriculum puts academic theory into practice, and can help you and your team excel at both the art and science of managing foreign exchange risk. Take the FX Initiative for your organization by subscribing here.

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Cheers,

The FX Initiative Team
support@fxinitiative.com

Focus First on FX Fundamentals

Foreign exchange risk management is referred to as a topic that’s “an inch wide and a mile deep.” This phrase means that one can easily cover the surface of the topic, but once you delve deeper there is a plethora of nuances and subtleties multinational corporations need to know to succeed.

The concept of “meta-learning” relates to an awareness and understanding of “how” you are learning not just “what” you are learning. In order for companies to solve more complex FX risk management issues, it is essential to look at “how” you are learning the fundamentals of FX risk management first.

For example, many companies struggle with accounting for currency derivatives. However, before a firm can truly grasp derivative accounting, it is essential to first build a foundation of knowledge on how to account for underlying foreign exchange exposures. Taking a step back can lead to a leap forward.

FX Initiative’s Currency Risk Management Training provides an incremental approach on both “how” and “what” to learn as it relates to foreign exchange exchange risk management. Whether you are brand new to FX or have prior experience, the training program can start where you currently are.

Our series of 6 training modules begins by focusing on the fundamentals of the Foreign Exchange Market and concludes with more advanced topics on Hedging FX Transactions & Foreign Subsidiaries. In between, we cover FX Risk Exposures, Risk Management, and Spot & Derivatives. This framework is designed to help the learner jump right into the curriculum at any point to elicit the most critical knowledge for their personal development. The key is that the learner has an awareness of where they are on the learning curve, and that is where the "how" of meta-learning comes into the equation.

FX Initiative's currency risk management training includes the following 6 video modules:

1. Foreign Exchange (FX) Market Overview
2. FX Risk Exposures
3. FX Risk Management
4. FX Spot & Derivatives
5. Hedging FX Transactions
6. Hedging Foreign Subsidiaries

You can watch the free introductions for each program to get an idea of the learning objectives covered, and then begin with the video you want to learn more about. For example, if you already know how to read currency quotations in the newspaper and how supply and demand impacts FX forecasting, then you may be ready to start learning where to look for FX Risk Exposures or how to create a FX Risk Management Policy. Investing the time up-front in learning foreign exchange fundamentals can help you solve more complex issues later on.

If you are ready to enahce your learning experience, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms recently, and it is now easier than ever to learn the fundamentals of currency risk management. Take the FX Initiative for your international business today!

Click here to subscribe >

Cheers,

The FX Initiative Team
support@fxinitiative.com

Start Learning the ABC’s of FX Risk Management

When it comes to Foreign Exchange Risk Management, finance, accounting and treasury professionals often find themselves dealing with a wide range of complex cash flow and financial reporting issues. In order to provide more sophisticated solutions to complicated problems, it is essential to first build a foundation of knowledge to use as a framework to make decisions. FX Initiative’s currency risk management training helps you learn “The ABC’s of FX” starting with the most basic concepts to help you scale the learning curve and effectively manage FX risk for your business.

Global companies face questions of how to manage currency risk? How to draft a FX risk policy? Where to look for FX risk exposures? What currency risks to hedge and how? Which strategies meet FX hedge objectives? What are the economics? How to do FX accounting?

FX Initiative's foreign exchange risk management training addresses all of these questions with our online video series about:

1. Foreign Exchange (FX) Market Overview
2. FX Risk Exposures
3. FX Risk Management
4. FX Spot & Derivatives
5. Hedging FX Transactions
6. Hedging Foreign Subsidiaries

Then, you can review and test with quizzes and CPE exams. And reinforce learning using real examples with our:

• Currency Code Locator
• FX Risk Policy Drafter
• FX Derivative Speculator
• FX Transaction Simulator
• FX Subsidiary Consolidator

FX Initiative training is available 24/7 365 to help you with FX risk policies, FX accounting, FX hedging strategies, and FX risk management.

Are you ready to manage FX risk?  Take the FX Initiative by subscribing today!

If you are ready to deliver better results to the bottom line, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms recently, and it is now easier than ever to learn the fundamentals of currency risk management. Take the FX Initiative for your international business today!

Click here to subscribe >

Cheers,

The FX Initiative Team
support@fxinitiative.com

There’s No Free Lunch with FX Derivatives

Milton Friedman, the American economist who received the 1976 Nobel Memorial Prize in Economic Sciences, wrote a book titled "There's No Such Thing as a Free Lunch" and that saying is particularly applicable for understanding currency derivatives. When selecting a foreign exchange hedge instrument, firms can benefit from recognizing the differences and similarities of common derivatives such as a forward contracts, vanilla options, or zero cost collar option combinations.

The FX Spot & Derivatives course explores the concepts of forward contracts, put and call options, and zero cost collars and examines their pricing variables and payoff profiles. Many firms seek protection from unfavorable changes in exchange rates while also seeking to retain the ability to participate in favorable rate movements. This 1 hour program will reveal the mechanics of the most common currency derivatives, and underscore how “there is no such thing as a free lunch” with FX derivatives.

If you are interested in learning more about foreign exchange deritatives and how they are used in practice, sign up for our Foreign Exchange Risk Management Training today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com.  Learn the fundamentals of currency risk management by taking the FX Initiative for your international business today!

Click here to start your FX Risk Management Training today!

Cheers to your global organization's success abroad,

The FX Initiative Team
support@fxinitiative.com

Share Your FX Challenges & Success Stories

Foreign exchange risk management presents a variety of challenges in terms of economics, finance, tax, and accounting among other areas of operations. As a result, multinational corporations and financial institutions view these challenges as daily opportunities to overcome obstacles and achieve success in international endeavors. FX Initiative invites you to share your FX challenges and success stories for our upcoming educational webinar series this fall.

Some questions to consider as it relates to foreign exchange risk management stories may include, but are not limited to:

• Has your financial institution worked closely with you to help solve a economic or accounting challenge?
• Were you able to identify and map out all of the foreign exchange exposures inherent in your business model?
• Did you formulate a hedging strategy that effectively met your foreign exchange risk management objectives?
• Was your foreign exchange risk management policy updated as a result of expanding into new markets?

These questions point to some of the many challenges and successes foreign exchange market participants face on a regular basis. Whether you have already solved a unique challenge to your specific business or are still struggling to find a solution, FX Initiative welcomes you to share your story. Take advantage of this unique opportunity to showcase and solve your foreign exchange risk management challenges by contacting us here to share your FX Success Story.

Cheers,

The FX Initiative Team
support@fxinitiative.com

How Brexit Impacts the FX Bottom Line

Many have read about Brexit in the news headlines, which is a term that refers to the United Kingdom's planned withdrawal from the European Union (EU). Since the EU referendum took place in June of 2016, the British pound sterling (GBP) has declined in value against the U.S. dollar (USD) by roughly 15% from June 24, 2016 levels which hovered around the 1.4500 mark to approximately 1.2500 levels as of April 17, 2017. In less than a year, many companies with foreign currency exposure to the British pound sterling have seen a serious impact to the bottom line of the income statement.

Looking at this political event from a foreign exchange risk management perspective, Brexit would fall under the category of foreign exchange economic risk that is covered in FX Initiative’s FX Risk Exposures course. Economic risk relates to the macro impact fluctuating foreign exchange rates have on business opportunities, and includes the risk associated with the political, economic, and regulatory environment of the country or region in which a firm is conducting business.

The following 3 minute video clip from FX Initiative’s FX Risk Exposures course describes the concept of foreign exchange economic risk, and highlights 2 examples which include Venezuela’s 2010 changes in government policy and Apple’s 2015 10-K disclosures. While Brexit type events may not be predictable or preventable, companies can protect themselves over an extended time frame by laying out a long term and sustainable foreign exchange risk management plan.

If you are interested in learning more about the different types of foreign exchange risk and how you can protect your company against adverse changes in exchange rates, sign up for our Foreign Exchange Risk Management Training today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms for 2017 and it is now easier than ever to learn the fundamentals of currency risk management. Make this the year to reduce FX risk and reap rewards abroad by taking the FX Initiative for your international business today!

Click here to start your FX Risk Management Training today!

Cheers to your global organization's continued success in the new year,

The FX Initiative Team
support@fxinitiative.com