Hedge accounting is designed to reduce volatility caused by the mismatch between the timing of gains or losses in hedged items and their corresponding hedging instruments. If you align the financial reporting of both, companies will achieve a more accurate representation of where their finances are. Hedge accounting is an important facet of financial management—it […]
The Federal Open Market Committee (FOMC) is set to meet on May 4, 2022 – and it’s looking like the fed funds rate will rise (again).
Thanks to changes in accounting rules and the NCUA’s derivatives rule, more and more credit unions are empowered to use derivatives to hedge interest rate risk. In this blog, we discuss three reasons why you should include hedging in your interest rate risk management strategy.
Credit unions: Have you considered using derivatives to manage your interest rate risk? Many have generally shied away from this strategy—until now. In this blog, we highlight the benefits and discuss how to get started with this helpful interest rate risk management tool.
On Friday, the CME announced they will start publishing Term SOFR Rates for 1-month, 3-month and 6-month tenors.
Late last week, the Financial Accounting Standards Board (FASB) issued an exposure draft expanding the scope of Topic 848 to include derivatives that are discounted, but not reset, using rates subject to reference rate reform (RRR). The proposed amendments target contracts with calculations (other than resets) referencing IBOR rates, e.g. margining, discounting or price alignment.
The eagerly anticipated ISDA IBOR Fallback Protocol was released on Friday, October 23, 2020. The effective date of the protocol has been set for January 25, 2021.
The drop in rates in Q1 has increased the net cash payments on pay-fixed, receive-variable interest rate swaps and at the same time increased the derivative losses. What does this mean for your hedge accounting?
We always encourage hedgers to consider the economics of a transaction before looking at the accounting. If the economics don’t make sense, it doesn’t matter how favorable the accounting treatment is, it probably isn’t a good idea!
The direct impacts of the transition away from LIBOR to the use of an alternative reference rate such as the Secured Overnight Financing Rate (SOFR) have been well publicized. ISDA and ARRC have been releasing regular updates and suggested fallback language to determine how LIBOR rates will be replaced in derivative and loan agreements, once LIBOR is no longer available.
While the derivatives market had been changing fairly rapidly prior to COVID-19, 2020 market dynamics have not closed the gap between expected and observed market prices. It’s critical that corporations and institutions address the coming reference rate changes related to their derivatives and debt instruments tied to LIBOR.
Businesses mired down by the impacts of COVID-19 are facing enough difficulties. But the march to LIBOR’s end has continued unabated.
Lenders such as banks, mortgage lenders, and credit unions manage large portfolios of fixed-rate loans. Typically, these assets are funded with floating-rate liabilities. This mismatch between fixed-rate assets and floating-rate liabilities can cause unwelcome earnings volatility.
The translation process converts local currency financial statements of subsidiaries into USD based financials for consolidation and reporting purposes.
In March, the FASB issued ASU 2020-04 on the “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”