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The Impact of Not Electing Hedge Accounting

Minneapolis, MN | August 24, 2023 | HedgeTalk Newsletter | By: John Trefethen, Director & Co-Founder


Table of Contents:

  1. Market Moving Headlines

  2. Interest Rates

  3. Currencies

  4. Commodities

  5. Concept of the Week: Risk versus Speculation

  6. Quote of the Week

 

Market Moving Headlines

  • US existing home sales fall to a 6-month low.

  • US new home sales jump to a 17-month high

  • Japanese Yen holds near a 9-month low.

  • Oil prices are down for the third session in a row.

  • US services activity expands the least in six months.

  • US factory sector shrinks more than expected.

  • US mortgage rates the highest since 2000.

Interest Rates

Green, grey, and white chart for US treasury market









grey, white and green 2Y-10Y Spread














Grey, black and green chart











Currencies

Grey, white currencies chart with the HedgeStar star














Commodities

Grey and white chart with green star for commodities














Concept of the Week: the impact of not electing hedge accounting

Hedge accounting is a specialized and preferred accounting treatment that allows companies to mitigate the volatility in their financial statements that can result from value fluctuations in certain financial instruments used for hedging purposes. When companies do not use hedge accounting and instead account for hedging activities on a mark-to-market basis, several potential impacts can arise:

  • Earnings volatility

  • Income statement distortion

  • Inaccurate financial ratios

  • Risk management effectiveness is diminished

  • Impact on debt covenants

  • Investor confidence can wain

  • Higher cost of capital

It is important to note that the decision to use hedge accounting depends on a variety of factors including the company’s risk management objectives, the nature of its hedging activities, and the accounting standard it follows. Contact HedgeStar to help guide you through this important decision.


Quote of the Week


“The uncertainty of tomorrow is the catalyst that makes today’s choses meaningful.” – Simon Sinek

 

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Author: John Trefethen, Director and Co-Founder

Mobile: 612-868-6013

Office: 952-746-6040


HedgeStar Media Contact:

Megan Roth, Marketing Manager

Office: 952-746-6056

 

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