Which of the following statements is true concerning hedge accounting?
A) Hedges of foreign currency firm commitments are used for future sales only.
B) Hedges of foreign currency firm commitments are used for future purchases only.
C) Hedges of foreign currency firm commitments are used for current sales or purchases.
D) Hedges of foreign currency firm commitments are used for future sales or purchases.
E) Hedges of foreign currency firm commitments are speculative in nature.

Question

Quizplus · Accepted Answer

Hedges of foreign currency firm commitments can be used for future sales or purchases. Hedge accounting is used to mitigate the risk of changes in the exchange rate affecting the value of firm commitments. This allows companies to accurately predict future cash flows and reduce volatility in their financial statements.

Which of the Following Statements Is True Concerning Hedge Accounting