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Foreign Currency Translations and Derivatives

How are foreign currency derivatives, such as forward contracts and options, reported on the balance sheet?

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For the past few years, corporate involvement in executory contracts has mushroomed, with the use of any number of derivative financial instruments. A financial instrument is defined as "cash, equity shares, or a contract that provides a right to receive cash with a converse obligation to the other party to pay cash" (Brownlee, 2001).

In turn, a derivative is defined as a financial instrument whose value is determined (derived) from something else. The umbrella term "derivatives" includes futures contracts and interest swaps. Derivatives are usually used as "a hedge against some future eventuality, but it is also true that a derivative can be used as a pure (albeit speculative) investment vehicle" (Brownlee, 2001).

In terms of forward contracts and options; the SEC has been reluctant to issue rules ...

Solution Summary

Subjects in foreign currencies, derivatives, forward contracts, and options.