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    Classifying Types of Derivatives

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    Classification of Derivatives for Accounting

    I. Speculative
    II. Fair value hedge
    III. Cash flow hedge
    IV. Foreign currency fair value hedge
    V. Foreign currency cash flow hedge
    VI. Foreign currency hedge of net investment in foreign operation
    VII Not a derivative

    Based on the above, what category would each of these fit into:
    a. A pasta company is worried about the value of its Italian subsidiary.
    b. A hedge fund thinks that the Canadian dollar is overvalued.
    c. A diamond importer must make non-dollar payments.
    d. A copper fabricator enters into a long-term supply contract.
    e. A shipyard desires to fix its floating rate payments.
    f. A borrower wants to take advantage of lower floating interest rates.
    g. A wine distributor has French franc-denominated zero coupon bonds

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    Classification of Derivatives for Accounting

    I. Speculative
    II. Fair value hedge
    III. Cash flow hedge
    IV. Foreign currency fair value hedge
    V. Foreign currency cash flow hedge
    VI. Foreign currency hedge of net investment in foreign operation
    VII Not a derivative

    Based on the above, what category would each of these fit into:
    a. A pasta company is ...

    Solution Summary

    This solution discusses the different types of derivatives, defines each, and gives an example of each.

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