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Net Investment Hedges are transactions designed to minimize the foreign exchange effect on foreign
investment. In this case, a change in the value of the net foreign assets/liabilities is adjusted to the
Other Comprehensive Income (―OCI‖) foreign exchange translation account, which is offset by the
change in value of the forex hedge.
Foreign Currency Exposures
A Firm Commitment is a binding agreement between unrelated parties, which is usually legally
enforceable. The agreement specifies all the key terms, including quantity, fixed price, and timing of
the transaction. The fixed price may be either in the functional currency or the foreign currency. The
binding agreement includes sufficient non-performance penalties such that performance is probable.
Firm commitments that are not recorded on the balance sheet may qualify for either fair value hedges
or cash flow hedges.
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