Hedging is a strategy designed to reduce financial risk using derivative instruments. A hedge can help lock in profits or limit losses by reducing the volatility of an asset or liability by mitigating the risk of loss.
If you are entering into deals for hedging purposes, you can use Oracle Treasury to document the reasons for hedging as well as specific components of the hedge. Oracle Treasury lets you track your hedges and document those hedges according to your hedging guidelines, perform revaluation and effectiveness testing, and generate associated accounting entries.
Companies using derivatives and subject to FAS133 or IAS39 are required to disclose hedging activities in their financial statements. In Oracle Treasury, you can track your cash flow, fair value, net investment in foreign operations, and economic hedges as defined by these accounting standards.
In order to record hedges in Oracle Treasury, complete the following setup steps:
Define Hedge Policies
Define Hedge Objective Types
Define Hedge Strategies
Once the setup steps are completed, you can begin to create hedges by defining hedge attributes and hedge relationships. For more information on defining hedge attributes and relationships, see: Hedge Attributes, or Hedge Relationships.