Show Menu
Cheatography
  1. Home >
  2. Business and Marketing >

Derivative Instruments Cheat Sheet (DRAFT) by

References Christopher H. German lectures Intermediate Accounting Vol. 3 by Valix, Peralta, and Valix.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

DERIVATIVE INSTRU­MENTS

A financial instrument that, by its terms at inception or upon occurrence of a specified event, provides the holder (or writer) with the right (or obliga­tion) to partic­ipate in some or all of the price changes of another underlying value of measure, but does not require the holder to own or deliver the underlying value of measure. Thus, its value is derived from it.

[PFRS 9] CRITERIA

1. Its value changes due to underlying
2. The settlement is in a future date
3. Little or no initial net investment
Underlying – may be a commodity, financial instru­ment, foreign exchange rate, or specified interest rate.

HEDGING VS SPECUL­ATIVE

Specul­ative
purpose is to earn profit
Hedging
purpose is to mitigate risk or loss
 

FORWARD CONTRACT

An agreement between two parties to exchange a specified amount of commodity, security, or foreign currency on a specified date at a specified price or exchange rate.
A commitment to purchase or sell a specified commodity on a future date at a specified price.

FIRM (PURCH­ASE­/SALE) COMMIT­MENTS

No actual transa­ction such as selling or purchasing at a future date.

This means that the purcha­se/the asset is not recorded until the date of settle­ment, unlike the previous transa­ction in which the asset is already recognized at the date of transa­ction.

Only a memo entry is made for the asset during the transa­ction date.
 

OPTION CONTRACT

Contracts that gives the holder the right to purchase or sell an asset at a specified price during a definite period on some future time.
This is recorded as an investment in the balance sheet. The amount paid for an option is referred to as the option premium.
Call option
Right to purchase an asset (buyer POV).
Put option
Right to sell an asset (seller POV).

OPTIONS

 
Call Option
Put Option
At the money
Spot = strike
Spot = strike
In the money
Spot > strike
Spot < strike
Out of the money
Spot < strike
Spot > strike