Foreign Currency Hedges

Foreign currency hedges are hedges against foreign currency exposure to any of the following:

• Unrecognized firm commitments (fair value).

• Available-for-sale securities (fair value).

• Forecasted transactions (cash flow).

• Net investments in a foreign operation.

Unrecognized Firm Commitments

See Firm Commitments.

Available-for-Sale Securities

You can hedge the change in fair value of an available-for-sale debt security (or a specific portion) from changes in foreign currency exchange rates.

You can also hedge available-for-sale equity securities if changes in fair value come from changes in foreign currency under certain conditions. First, the security cannot be traded on an exchange (or another established marketplace) where trades are denominated in your functional currency. Second, dividends, or other cash flows, to the security's holders' must be denominated in the same foreign currency that you expect to receive when the security is sold.

Forecasted Transactions/Recognized Firm Commitments

You can hedge foreign currency exposure to variability in the functional-currency-equivalent cash flows from foreign-currency-denominated forecasted transactions and foreign-currency-denominated intercompany transactions.

Net Investment in a Foreign Operation

The complexity of a foreign operation extends beyond the scope of cash flow and fair value hedges, which address the risks of specific financial components. Net investment in foreign operation hedges are not supported in Risk Management.