CFM62912 - Foreign exchange: matching: derivative contracts used to hedge share transactions: hedged item

REG 5ZA(1)(b) S.I. 2004/3256

The terms ‘forecast transaction’ and ‘firm commitment’ have the same meaning as for accountancy purposes - REG 2(2). In particular, both IFRS 9 and FRS 102 have the same definitions, as follows:

• ‘forecast transaction’ is ‘an uncommitted but anticipated future transaction’
• ‘firm commitment’ is ‘a binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates’

There is no requirement in REG 5ZA that the degree of certainty is sufficient for hedge accounting to be permitted under GAAP; there simply needs to be sufficient expectation of the transaction proceeding for hedging the foreign exchange risk to be commercially appropriate and an intention to hedge the risk.