The benefits of hedging future cash flows are clear: the company is protected from the possible impact of exchange rate movements, bringing greater certainty over the value of those flows.
But the way in which cash flow hedging is accounted for also needs to be considered. Companies have two choices here: they can use either standard derivative accounting or hedge accounting techniques.
While hedge accounting brings numerous benefits, many companies are put off by the complexity of the process. However, it’s important to remember that the challenges are not insurmountable – especially if you’re using the right tools for the job.
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