How Should Discounts or Premiums on Forward Contracts Be Treated

question 43

Multiple Choice

How should discounts or premiums on forward contracts be treated if the derivative is hedging a foreign-currency-denominated asset?

• A)They should be carried on the balance sheet until the contract is completed.
• B)They should be included in income in the period the derivative is acquired.
• C)They should be amortized over the life of the forward contract.
• D)None of the above.

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Definitions:

Interest Dispute

A conflict regarding the benefits or advantages that one or more parties expect to gain and disagree on during negotiations or agreements.

Jurisdictional Dispute

A disagreement stemming from the question of which court or administrative body has the legal authority to preside over a particular case or issue.

Recognition Dispute

A disagreement arising from the failure to acknowledge or accept the status, rights, or conditions of a party in a legal or formal context.

Bargaining Process

The negotiation between parties, such as unions and employers, to reach agreement on terms of employment.