Which of the Following Is Not a Disclosure for Derivatives

question 15

Multiple Choice

Which of the following is not a disclosure for derivatives required under SFAS No. 133?

• A) Firms must describe their risk management strategy and how particular derivatives help accomplish their hedging objectives.
• B) For fair value and cash flow hedges, firms must disclose the net gain or loss recognized in earnings resulting from the hedges' ineffectiveness and the line item on the income statement that includes this net gain or loss.
• C) For cash flow hedges, firms must describe the transactions or events that will result in reclassifying gains and losses from other comprehensive income to net income and the estimated amount of such reclassifications during the next 12 months.
• D) The specifics of a model that simulates with a 95 percent or other confidence level the minimum, maximum, or average amount of loss that a firm would incur.

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Definitions:

Diluted Earnings Per Share

A metric that calculates a company's earnings per share (EPS) if all convertible securities were converted into common stock, potentially lowering the EPS.

Convertible Debt

A type of bond or loan that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often paying fixed dividends.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time, including loans, bonds, or credit lines.