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:

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price over a certain period of time.

Supply Curve

A graph that illustrates the relationship between the price of a good and the quantity of the good that producers are willing to supply.

Transaction Costs

Expenses incurred when buying or selling goods and services, which can include broker fees, communication charges, or the cost of obtaining information.

Classified Ads

Short advertisements placed by individuals or businesses in a categorised listing to sell products or services, typically found in newspapers and online platforms.