Derivatives Implementation Group
Summary of January 18,
2000 Board Meeting Discussion on Statement 133 Implementation
Issues
Derivatives and hedging-possible amendment of
Statement 133. The Board discussed issues related to the
accounting for changes in the time value component of a purchased
option designated as the hedging instrument in a hedging
relationship. The Board also discussed issues related to the
guidance in Statement 133 Implementation Issue E1, "Hedging the
Risk-Free Interest Rate."
The Board decided not to change the requirements of
Statement 133 to permit the time value component of a purchased
option to be amortized to expense by a systematic and rational
method over the contractual life of the option contract.
The Board made the following decisions on the issues
related to the guidance in Statement 133 Implementation Issue
E1:
- The Board decided that sector spread should be
encompassed in credit risk (identified as the obligor's
creditworthiness in paragraph 21(f) of Statement 133) rather than
in market interest rate risk. As a result an entity would be able
to designate as the hedged risk changes in fair value attributable
to changes in the risk-free rate of interest. That change would
apply to both fair value hedges and cash flow hedges.
- The Board decided not to permit designation of the rate
encompassed in LIBOR or similar indexes as the hedged risk in the
hedge of interest rate risk.
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