Creating Hedges

Page Name	Definition Name	Usage
Other Hedgeable Items Page	HDG_EXPOSURE_PNL	You can import a database record from another PeopleSoft application or third-party system.
Hedge Designation Page	HDG_HEDGE	Capture descriptive information about your hedging purposes and strategies to meet disclosure requirements.
Hedging Instrument Page	HDG_HEDGE_DEAL	Capture information about the deal you will use to protect the hedged exposure.
Hedges - Deal Accounting Page	HDG_HEDGE_DEAL_AC	View the accounting associated with your hedging relationship.
Hedged Item Page	HDG_HEDGED_ITEM	Set up the exposure that you will hedge.
Hedged Transaction Details Page	HDG_ITEM_FVRAL_DTL	Capture higher resolution data about your hedge.
Hedges - Item Accounting Page	HDG_HEDGED_ITEM_AC	Set up accounting and effectiveness testing of your hedge.

Use the Other Hedgeable Items page (HDG_EXPOSURE_PNL) to you can import a database record from another PeopleSoft application or third-party system.

Navigation:

Risk Management > Analyze Hedge > Analyze Other Hedge Items > Other Hedgeable Items

Select the type of item whose risk exposure you want to minimize, and select the status:

Type	Status	Conditions
Forecasted Transaction	Firm Commitment or Asset / Liab (asset / liability) Forecasted Transaction No Longer Probable Probably Will Not Occur	If the type is a Forecasted Transaction, enter earnings information in the available grid.
Net Investment in a Foreign Op (net investment in a foreign operation)	Cancelled Net Investment in a Foreign Op
Recognized Asset or Liability	Recognized Asset or Liability Sold or Bought or Written Off
Unrecognized Firm Commitment	Cancelled Recognized Asset or Liability Unrecognized Firm Commitment

Note: Fields and available status values change depending on the value you select in the Type field.

Field or Control	Description
Risk Type	Select a type of risk for the hedged item.
Financial Type	Select Financial Item or Non-financial Item. If the risk to be hedged is financial, enter its Amount and its currency (in the field next to the Amount field). If the risk is non-financial, enter its Quantity, and select the appropriate Unit of Measure.
Foreign Currency Denominated	Select if the hedge is in a foreign currency, and select the appropriate value in the CurrencyCurrency field.
Period Start and Period End	Select the active period start and end dates for the hedge.
Review Date	Select the final review date for the hedge.
Final Earnings Effect	Select to include the effect of the specified amount and percentage on hedge final earnings.

Use the Hedge Designation page (HDG_HEDGE) to capture descriptive information about your hedging purposes and strategies to meet disclosure requirements.

Navigation:

Risk Management > Analyze Hedge > Analyze Hedges > Hedge Designation

Note: The page display changes depending on the Hedge Type.

Field or Control	Description
Hedge Type	This field is a read-only. The hedge type is selected at the business unit level on the Treasury Options page. Designates a hedge as either an IAS 39 Hedge, Economic/Other Hedge, a FAS 133 Hedge, or a FAS 52 Hedge. From the drop-down list box next to the right-hand Hedge Type field, you can further define your hedge using any of the following: Cash Flow Hedge: Hedge of exposure to cash flow variability from a particular risk (¶ 18(c)). Fair Value: Hedge of exposure to changes in the fair value of an asset, liability, unrecognized firm commitment, or identified portion thereof from a particular risk (¶ 18(b)). FX Cash Flow: Hedge of exposure to cash flow variability from changes in foreign currency exchange rates (¶ 18(d)(3)). FX FV of Available for Sale Security: Hedge of the change in the fair value of an available-for-sale debt security (or a specific portion) from changes in foreign currency exchange rates. You can hedge available-for-sale equity securities if changes in fair value come from changes in foreign currency under the following conditions. You have not traded the security on an exchange (or another established marketplace) where trades are denominated in your functional currency. Dividends, or other cash flows, to the security's holders are denominated in the same foreign currency that you expect to receive when you sell the security (¶ 18(d)(3). FX FV of Firm Commitment: Hedge of a foreign currency exposure to variability in the functional-currency-equivalent cash flows from foreign-currency-denominated forecasted transactions and foreign-currency-denominated intercompany transactions (¶ 18(d)(2). FX Hedge of Net Investment: Hedge of foreign currency exposure to your net investment in a foreign operation, which is viewed for accounting purposes, as a single asset versus several single individual assets and liabilities that make up a subsidiary's balance sheet (¶ 18(d)(4).
Hedge Relationship	Select descriptors of your various risk management strategies and practices (¶ 44). It is up to you to determine a reasonable, shorthand description that parties outside your organization can correlate to your actual complex activities. It is a good idea to obtain validation from your company's auditors. To complete the disclosure requirements in ¶ 44, Risk Management provides a 1,000-character, free-form field so that you can capture context-sensitive issues underlying your hedging activities.
Hedge Strategy	Select a hedge strategy based on the type of risk being hedged. Doing so enables the default parameters that were entered on the Hedge Strategy page for the specified hedge strategy.
Attachments	Click to view/ add attachments. See Installation Options - Multiple Attachments Page to define the maximum attachment upload limit for various products.

Effective Assessment Methods

Field or Control	Description
Retrospective Evaluations, Prospective Considerations, and Ineffectiveness Method	Effectiveness tests are means for an organization, its stakeholders, and external auditors to evaluate whether risk management strategies are on track, whether hedges are working or are likely to work as planned, and thus are within bounds for special accounting. When you set up a transaction and its correspondent hedged deal, link the two and document them for FAS 133. You must also define and document tests of methodologies to assess hedge effectiveness. (¶ 62.) Effectiveness assessment methods are dictated by ¶s 65 and 68-70. They are Retrospective Evaluations, Prospective Considerations, and Ineffectiveness Method. Select one of the following values for each of the fields: Assume No Ineffectiveness: Select this value (¶s 65, 68-70) if you are using the Shortcut Method for IRS Hedge. FAS 133's ¶ 68 permits the Shortcut Method for an IRS Hedge. You can use this method of effectiveness assessment only on interest rate swaps. If you selected Assume No Ineffectiveness in the Ineffectiveness Assessment field, and the hedge is an interest-bearing financial instrument with an interest rate swap (¶s 68-70,114,132), then you can select the Shortcut Method for IRS Hedge check box to compute ¶ 22(b) or ¶ 30(b) amounts. Correlation − Regression: This is a statistical correlation test between some attribute of the hedging deals compared to that attribute of the hedged items. Cumulative Offset: Compares the cumulative changes in fair value of the hedging deal with the cumulative changes in fair value of the hedged item. In each period in which this comparison is made, the two amounts must match within a tolerance of 80 percent to 125 percent. Note: In addition, when you perform the periodic assessment of effectiveness, you must do more than just run the Assessment reports or process (such as the Hedge Effectiveness report and the Regression test). You should also reassess your expectation that the hedge will continue to be highly effective. This would involve reexamining all appropriate factors, including those described in DIG issue G10. Your accounting procedures must meet extensive criteria to qualify for the Shortcut Method, which is also known as Assuming No Ineffectiveness with an Interest Rate Swap. Refer directly to ¶ 68 of FAS 133 to ensure that your scenario qualifies for this accounting treatment of hedging. Assume No Effectiveness does not imply that there will be no periodic assessment of effectiveness. According to DIG G9 - Cash Flow Hedges: Assuming No Ineffectiveness When Critical Terms of Hedging Instruments and Hedged Transaction Match in a Cash Flow Hedge, www.rutgers.edu/Accounting/raw/fasb/derivatives/issueg9.html, "An entity is still required to perform and document an assessment of hedge effectiveness at the inception of the hedging relationship and on an ongoing basis throughout the hedge period."
Risk Offset	Select One-sided Offset Against Gains, Onesided Offset Against Losses, or Symmetrical Offset. ¶ 20(b) and ¶ 28(b) discuss how to assess effectiveness when the hedging instrument provides only a one-sided offset against changes of the hedged item (such as when an option is used).
Inception Date	Displays the current date until you save the page. You record the entity that is creating the hedged relationship—at the data entry level—using the logon user ID. PeopleSoft Workflow can also address your organization's management authorization process, providing further audit trails.
Discontinued Date	Use to record the actual date that a hedged relationship terminates (¶s 25 and 32). The system completes this field as you undesignate the hedge later in the hedging process. If you terminate a hedged relationship and you have sufficient reason to resume the same course with the exact variables, you must create a new hedge relationship. That is, you must create a hedge for accounting purposes that is different from the one that began and ended earlier. This requirement to create a new hedge can also apply to the maturity of a derivative contract.

Note: Once a hedged relationship terminates, it cannot be revived.

Risk Being Hedged

Per ¶ 21(a-f), you can hedge only the four risks listed:

Field or Control	Description
Changes in Overall Fair Value	Select to hedge non-financial risks, such as commodities. Selecting this check box automatically clears any other hedged risk options selected.
Interest Rate Risk	Select to hedge risk of instability in interest rates.
Foreign Currency Exchange Risk	Select to hedge risk of fluctuation of foreign currency exchange rates.
Credit Risk	Select to hedge risk of credit variability.
Other and Risk Name	Select the Other field and enter a name to designate another type of risk investment to be hedged.
Comments	Click to access the Details page to record details of the hedged risk entered in the Risk Name field.

Use the Hedging Instrument page (HDG_HEDGE_DEAL) to capture information about the deal you will use to protect the hedged exposure.

Navigation:

Risk Management > Analyze Hedge > Hedges > Hedging Instrument

Field or Control	Description
Sequence	Displays the default sequence number of I. Per ¶ 18, you can have multiple deals designated as the hedging instrument. Enter the Deal Business Unit and Deal ID, which create the link to the protected deal.
Proportion Designated as Hedge	Given the difference in financial values that deals can have, use this field to define that only a certain percentage of the hedging deal actually be used for hedge purposes.

Note: FAS 133's ¶ 18 requires that you document that you will use only a portion or percentage of a deal for hedging purposes. It states that either all or a proportion of a derivative may be designated as the hedging instrument. The proportion must be expressed as a percentage of the entire derivative so that the profile of risk exposures in the hedging portion of the derivative is the same as that in the entire derivative. (Thus, an entity is prohibited from separating a compound derivative into any such component as the hedging instrument, except as permitted at the date of initial application by the transition provisions in ¶ 49.)

Assessing Hedge Effectiveness

Define aspects of how the hedge will be evaluated.

Field or Control	Description
Include All Gains or Losses	Select to assess the effectiveness of all fair value changes (¶ 63).
Exclude Time Value	Select to calculate changes in fair value where effectiveness is evaluated on a cumulative basis.
Analytics Mode	Select third-party analytics to calculate the part of your hedge used to assess hedge effectiveness.
Added to Hedge	Displays the current date as the default, which becomes part of the audit trail when the page is saved. The operator's login user ID appears alongside the Added to Hedge field in the view-only By field.
Removed from Hedge	Enter the date the hedging relationship terminates, or the system will automatically enter the maturation date of the hedged deal as that date passes in time. (See ¶s 25 and 32.)

Use the Hedges - Deal Accounting page (HDG_HEDGE_DEAL_AC) to view the accounting associated with your hedging relationship.

Navigation:

Risk Management > Analyze Hedge > Analyze Hedges > Deal Accounting

Field or Control	Description
Initial Fair Value	Enter the initial market to market value amount of the deal, which can be a positive or negative number.
Calculate	Click to recalculate a new fair value and add a new line to the Fair Value History grid. The Calculate button appears only if the Exclude Time Value check box is selected on the Hedging Instrument page.
Use Values	Select this check box to use specified values in the Fair Value and Fair Value Adjustment fields for calculation, instead of calculated values from Risk Analytics.

Use the Hedged Item page (HDG_HEDGED_ITEM) to set up the exposure that you will hedge.

Navigation:

Risk Management > Analyze Hedge > Analyze Hedges > Hedged Item

Field or Control	Description
Hedged Item Source	Select Treasury Deal (a deal resident in the PeopleSoft system) or Other Hedgeable Item to indicate what you are hedging.
Financial Type	You can set up the hedged deal as a Financial Item or a Nonfinancial Item. Note: The page changes depending on the financial type that you selected.

Hedged Item/Transaction

Field or Control	Description
Portion	Select what portion or percentage of your hedged item or transaction will be used in the hedging relationship: All: Use the entire hedged item or transaction. Embedded Option/Cap/Floor: Enables you to handle embedded derivatives that do not require separate accounting, for example if the deal can pass a portability test (¶s 21(a) to 22(c)). Percentage: Select to enable thePercentage field so that you can specify the exact percentage that you will use. Residual Value in Lease: Available only for fair value hedges. Selected Cash Flows: Available only for cash flow hedges.
Exposure Business Unit	Select the business unit for the exposure.
Added to Hedge or Removed from Hedge	Enter the effective date for the fields.
Remove	Click if you are removing the item from the hedge.

Use the Hedged Transaction Details page (HDG_ITEM_FVRAL_DTL) to capture higher resolution data about your hedge.

Navigation:

Click the Details link on the Hedged Item page.

You can capture hedge information and add the level of detail necessary for your internal monitoring of deals. For example, if you hedge commodities, you will have commodity values available from a PeopleSoft table, such as Crude Oil. The Hedged Transaction Details page enables you to record grades of crude oil, the regions they are from, or other distinguishing traits.

Available fields depend on the hedge type that you specify.

Hedge Type	Available Page Fields
Cash Flow	Expected to Occur Period Start, Expected to Occur Period End, Expected Cash Flows, Expected Currency Amount, and Quantity
Foreign Exchange	Exchange Period Start, Exchange Period End, Purchase, Sale, Fixed Price, or Face Value
Fair Value	Hedged Item End Date, Asset Liability, or Face Value

Note: In the context of FAS 133's language, the free-form text field enables you to explain your hedging with "sufficient specificity." This can include references to the Purchase Order numbers that you hedge or other details that your risk managers and auditors consider relevant for meeting the intent of FAS 133.

Use the Hedges - Item Accounting page (HDG_HEDGED_ITEM_AC) to set up accounting and effectiveness testing of your hedge.

Navigation:

Risk Management > Analyze Hedge > Analyze Hedges > Item Accounting

Note: Available fields depend on the hedge type selected at the business unit level.

Hedge Type	Page Fields	Description
Cash Flow Hedges	Initial Future Cash Flow Attributable to Hedged Risk	The fair value (mark to market) of a treasury deal, or the fair value or cash flows of a hedged item.
Cash Flow Hedges	Fair Value Adjustment	The (cumulative) adjustment amount excluded from the calculation of the change in fair value of a deal or hedged item. Corresponds to amortized cost for investments and to ¶ 19 adjustments for a hedged item.
Fair Value	Amortize Carrying Amount Adjustment	Select this check box if the adjustments of the carrying amount of the hedged item should be amortized to earnings (¶ 24).
Fair Value	Amortization Period Begin/End	Define date parameters for the amortization period calculation.

Field or Control	Description
As of Date	The fair value calculation is based on this date.
Fair Value	The value of the deal on the As of Date.

Creating Hedges

Pages Used to Create Hedges

Other Hedgeable Items Page

Hedge Designation Page

Effective Assessment Methods

Risk Being Hedged

Hedging Instrument Page

Assessing Hedge Effectiveness

Hedges - Deal Accounting Page

Hedged Item Page

Hedged Item/Transaction

Hedged Transaction Details Page

Hedges - Item Accounting Page