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Theoretical and Applied Economics
No. 12 / 2013 (589)

Fair value hedging, between opportunity and necessity

Daniela SAHLIAN
Bucharest University of Economic Studies
Mihaela BOTEA
Bucharest University of Economic Studies
Daniela Livia TRAŞCĂ
Bucharest University of Economic Studies

Abstract. In the actual worldwide context the exposure of companies to various financial risks increased and the consequences are much worst than 10 years ago. That’s why hedging accounting has become a necessity. Derivative operations can be used to hedge: interest rate risks, foreign currency exchange rate risks, credit risks. Derivatives used to hedge these risks can be handled to cover fair value exposure, cash flow exposure and exposure to changes in the value of a net investment in a foreign operation. This paper proposes two models for fair value risk hedging using derivatives. Both examples are based on IAS 39, some of the most controversial accounting standards of the day. The proposed solutions can be used by the experts interested in applying hedging accounting in order to manage this particular type of risk and to limit the negative consequences of companies’ performances.

Keywords: hedge accounting; hedge effectiveness; fair value exposure; cash flow exposure; fair value hedge.

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