In short
A net investment hedge protects against the foreign currency risk of a net investment in a foreign operation, using a derivative or foreign-currency debt as the hedging instrument.
Key takeaways
- Gains and losses on the hedging instrument go to other comprehensive income, in the cumulative translation adjustment.
- They are reclassified to earnings only when the foreign operation is sold or substantially liquidated.
- Nonderivative instruments, such as a loan in the foreign currency, can qualify only for this type of hedge and certain fair value hedges.
Where it's tested
BAR: Derivatives & Hedge Accounting — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Gains and losses on a derivative designated as a hedge of a net investment in a foreign operation are reported: