Lesson: Derivatives and hedge accounting - Practice Questions

In this lesson, Nick Palazzolo, CPA, tackles the intricate world of derivatives and hedge accounting, specifically honing in on how gains or losses from fair value hedges should be recognized. With a clear and handy chart on display, he demystifies the complex topic and emphasizes the importance of memorization for exam success, especially regarding the differences between fair value and cash flow hedges and how they're reported in financial statements. Building on that foundation, Nick further tasks with identifying financial instruments that do not qualify as derivatives, clarifying key concepts by examining stock index options, currency futures, interest rate swaps, and bank certificates of deposit. By the end of the lesson, there is a clear pathway through the maze of derivative financial instruments, complete with practical examples that show their application and relevance.