Forex Hedge Accounting Treatment
OANDA’s FXConsulting
for Corporations
24
Case Study #2 - Cash Flow Hedge – Designated – Accounting Entries
Company: US Gadget, a US dollar reporting company with future sales in Canada.
Scenario: On September 1, US Gadget enters into a sales contract to deliver CAD $250,000 worth of
product to a Canadian customer on or about January 20. The current USD/CAD exchange rate is
1.0254/1.0257. (The first amount listed is the sell rate and the second amount listed is the buy rate. The
first currency listed is known as the quote currency and always equals 1. In this case, therefore, to buy
1 USD, you would pay 1.0257 CAD—you are buying USD with CAD.)
In the previous case study, the EUR/USD pair was a sell transaction (sell EUR and buy USD). Since
the placing of the USD is reversed for this pair (USD/CAD), you will be entering a buy transaction
(buy USD and sell CAD). Both transactions are effectively buying US dollars, but in forex transactions
you must be aware of which currency is the first in the pair.
Outcome: The future sales contract for CAD $250,000 is equal to USD $243,735.99. To protect the
future USD value of this receivable, US Gadget enters into a carry spot transaction on an online forex
platform, buying the USD/CAD currency pair today at 1.0257 and locking in the future value of the
$243,736 USD receivable.
We will assume for the entire transaction timeframe that the interest rates are as follows:
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