The Accounting Issues - Instructor PPT Chapter 11 PDF

The Accounting Issues w Foreign currency transactions: They are transactions (e.g., sales or purchases) that give rise to the transfer of foreign currency or the recording of receivables or payables that are denominated in a foreign currency. ‫ ھﻲ اﻟﻣﻌﺎﻣﻼت‬:‫اﻟ...

The Accounting Issues w Foreign currency transactions: They are transactions (e.g., sales or purchases) that give rise to the transfer of foreign currency or the recording of receivables or payables that are denominated in a foreign currency. ‫ ھﻲ اﻟﻣﻌﺎﻣﻼت‬:‫اﻟﻣﻌﺎﻣﻼت ﺑﺎﻟﻌﻣﻠﺔ اﻷﺟﻧﺑﯾﺔ‬ ‫)ﻣﺛل اﻟﻣﺑﯾﻌﺎت أو اﻟﻣﺷﺗرﯾﺎت( اﻟﺗﻲ ﺗؤدي إﻟﻰ ﺗﺣوﯾل اﻟﻌﻣﻠﺔ اﻷﺟﻧﺑﯾﺔ أو‬.‫ﺗﺳﺟﯾل اﻟﻣﺳﺗﺣﻘﺎت أو اﻟدﻓﻌﺎت اﻟﻣﻘوﻣﺔ ﺑﻌﻣﻠﺔ أﺟﻧﺑﯾﺔ‬ w Translation is the process of restating foreign currency transactions to their U.S. dollar equivalent values. ‫اﻟﺗرﺟﻣﺔ ھﻲ ﻋﻣﻠﯾﺔ إﻋﺎدة ﺻﯾﺎﻏﺔ ﻣﻌﺎﻣﻼت اﻟﻌﻣﻼت اﻷﺟﻧﺑﯾﺔ‬.‫إﻟﻰ ﻗﯾﻣﮭﺎ اﻟﻣﻌﺎدﻟﺔ ﺑﺎﻟدوﻻر اﻷﻣرﯾﻛﻲ‬ 4  The Accounting Issues w Many U.S. corporations have multinational operations. n The foreign subsidiaries prepare their financial statements in their home n currencies. The foreign currency amounts in these P U.S. financial statements have to be translated into their U.S. dollar equivalents before they can be consolidated with the U.S. parent’s S Foreign financial statements that uses U.S. dollar as its reporting currency unit. ‫ﯾﺗﻌﯾن ﺗرﺟﻣﺔ‬ ‫اﻟﻣﺑﺎﻟﻎ ﺑﺎﻟﻌﻣﻠﺔ اﻷﺟﻧﺑﯾﺔ ﻓﻲ ھذه اﻟﺑﯾﺎﻧﺎت اﻟﻣﺎﻟﯾﺔ إﻟﻰ ﻣﺎ‬ ‫ﯾﻌﺎدﻟﮭﺎ ﺑﺎﻟدوﻻر اﻷﻣرﯾﻛﻲ ﻗﺑل أن ﯾﺗم دﻣﺟﮭﺎ ﻣﻊ اﻟﺑﯾﺎﻧﺎت‬ ‫اﻟﻣﺎﻟﯾﺔ ﻟﻠﺷرﻛﺔ اﻷم اﻷﻣرﯾﻛﯾﺔ اﻟﺗﻲ ﺗﺳﺗﺧدم اﻟدوﻻر‬ 5  Foreign Currency Exchange Rates w Foreign currency exchange rates between currencies are established daily by foreign exchange brokers who serve as agents for individuals or countries wishing to deal in foreign currencies. n Some countries maintain an official fixed rate of currency exchange and have established fixed exchange rates for dividends remitted outside the country. 6  Foreign Currency Exchange Rates w The determination of exchange rates n Exchange rates change because of a number of economic factors affecting the supply of and demand for a nation’s currency. n Factors causing fluctuations in exchange rates include: l Level of inflation l Balance of payments l Changes in interest rate l Changes in investment levels l Stability and process of governance 7  Direct versus Indirect Exchange Rates w The Direct Exchange Rate (DER) is the number of local currency units (LCUs) needed to acquire one foreign currency unit (FCU). n From the viewpoint of a U.S. entity: U.S. dollar–equivalent value DER = 1 FCU n Example: Assume that $1.20 can acquire 1 euro $1.20 DER = = 1.20 $/€ €1 8  Direct versus Indirect Exchange Rates w The Indirect Exchange Rate (IER) is the reciprocal of the direct exchange rate. n From the viewpoint of a U.S. entity: 1 FCU IER = U.S. dollar–equivalent value n Example: Assume a U.S. based company can purchase one euro for $1.20. €1 IER = = 0.8333 €/$ $1.20 9  Direct versus Indirect Exchange Rates w DER is identified as American terms n To indicate that it is U.S. dollar–based and represents an exchange rate quote from the perspective of a person in the United States. w IER is identified as European terms n To indicate the direct exchange rate from the perspective of a person in Europe, which means the exchange rate shows the number of units of the European’s local currency units per one U.S. dollar. w The terms currency is the numerator and the base currency is the denominator in the exchange rate ratio..‫إن ﻣﺻطﻠﺢ اﻟﻌﻣﻠﺔ ھو اﻟﺑﺳط واﻟﻌﻣﻠﺔ اﻷﺳﺎﺳﯾﺔ ھﻲ اﻟﻣﻘﺎم ﻓﻲ ﻧﺳﺑﺔ ﺳﻌر اﻟﺻرف‬ 10  Changes in Exchange Rates w Weakening of the U.S. dollar—direct exchange rate increases. w Strengthening of the U.S. dollar—direct exchange rate decreases. The Direct Exchange Rate (DER) is the number of local currency units (LCUs) needed to acquire one foreign currency unit (FCU). 11  Changes in Exchange Rates w Weakening of the U.S. dollar—direct exchange rate increases, implies: n Taking more U.S. currency to acquire one foreign currency unit. n One U.S. dollar acquiring fewer foreign currency units. n Example: DER increases from $1.33/€ to $1.45/€. 12  Changes in Exchange Rates w Strengthening of the U.S. dollar—direct exchange rate decreases, implies: n Taking less U.S. currency to acquire one foreign currency unit. n One U.S. dollar acquiring more foreign currency units. n Example: DER decreases from $1.45/€ to $1.26/€. 13  Spot Rates versus Current Rates w The spot rate is the exchange rate for immediate delivery of currencies. w The current rate is defined simply as the spot rate on the entity’s balance sheet date. w The forward rate is defined as the rate at which currencies can be exchanged at some future date. 14  Forward Exchange Rates w The forward rate on a given date is not the same as the spot rate on the same date. w Expectations about the relative value of currencies are built into the forward rate. w The spread: n The difference between the forward rate and the spot rate on a given date. n Gives information about the perceived strengths or weaknesses of currencies. 15  Forward Exchange Rates w Example: n Assume a U.S.-based company purchases inventory for €1,000 on 3/31 and the contract requires payment on 9/30. 180-day Forward rate = $1.40/€ Spread = $0.05/€ Spot rate = $1.35/€ 3/31 9/30 16 Practice Quiz Question #1 Solution Which of the following statements is false? a. Most currency exchange rates are determined by brokers on a daily basis. b. Economic factors rarely affect exchange rates. c. Some countries maintain control over their exchange rates. d. When the U.S. dollar strengthens, it has greater buying power overseas and can buy more units of foreign currencies. e. A spot rate is the exchange rate for immediate delivery of a currency. 17  Foreign Currency Transactions w Foreign currency transactions are economic activities denominated in a currency other than the entity’s recording currency. w These transactions include the following: 1. Purchases or sales of goods or services (imports or exports), the prices of which are stated in a foreign currency. 2. Loans payable or receivable in a foreign currency. 3. Purchase or sale of foreign currency units. 19  Foreign Currency Transactions w For financial statement purposes, transactions denominated in a foreign currency must be translated into the currency the reporting company uses. w At each balance sheet date, account balances denominated in a currency other than the entity’s reporting currency must be adjusted to reflect changes in exchange rates during the period. w The adjustment in equivalent U.S. dollar values is a foreign currency transaction gain or loss for the entity when exchange rates have changed. 20  Foreign Currency Transactions Assume that a U.S. company acquires €5,000 from its bank on January 1, 20X1, for use in future purchases from German companies. The direct exchange rate is $1.20 = €1; thus, the company pays the bank $6,000 for €5,000, as follows: U.S. dollar equivalent value = Foreign currency units x Direct exchange rate $6,000 = €5,000 x $1.20 The following entry records this exchange of currencies: January 1, 20X1 Foreign Currency Units (€ ) 6,000 Cash 6,000 On July 1, 20X1, the exchange rate is $1.10 = €1. The following adjusting entry is required in preparing financial statements on July 1: July 1, 20X1 Foreign Currency Transaction Loss 500 Foreign Currency Units (€ ) 500 21  Foreign Currency Import and Export Transaction w An overview of the required accounting for an import or export transaction denominated in a foreign currency, assuming the company does not use forward contracts, is as follows: n Transaction date: (spot rate) l Record the purchase or sale transaction at the U.S. dollar–equivalent value using the spot direct exchange rate on this date. 22  Foreign Currency Import and Export Transactions w An overview of the required accounting for an import or export transaction denominated in a foreign currency, assuming the company does not use forward contracts, is as follows: n Balance sheet date: (current rate) l Adjust the payable or receivable to its U.S. dollar– equivalent, end-of-period value using the current direct exchange rate. l Recognize any exchange gain or loss for the change in rates between the transaction and balance sheet dates. 23  Foreign Currency Import and Export Transactions w An overview of the required accounting for an import or export transaction denominated in a foreign currency, assuming the company does not use forward contracts, is as follows: n Settlement date: (forward rate) l Adjust the foreign currency payable or receivable for any changes in the exchange rate between the balance sheet date (or transaction date if transaction occurs after the balance sheet date) and the settlement date, recording any exchange gain or loss as required. l Record the settlement of the foreign currency payable or receivable. 24  Illustration of Foreign Purchase Transaction w Assume the following information: n On October 1, 20X1, Peerless Products, a U.S. company, acquired goods on account from Tokyo Industries, a Tran Japanese company, for $14,000, or 2,000,000 yen. Balance sheet date n Peerless Products prepared financial statements at its year-end of December 31, 20X1. n Settlement of the payable was made on April 1, 20X2. 25  Illustration of Foreign Purchase Transaction w Assume the following information: n The direct spot exchange rates of the U.S. dollar- equivalent value of 1 yen were as follows: 26  Comparative U.S. Company Journal Entries for Foreign Purchase Transaction Denominated in Dollars versus Foreign Currency Units If Denominated in U.S. Dollars If Denominated in Japanese Yen ansactions will be n us dollars October 1, 20X1 (Date of Purchase) Inventory 14,000 Inventory 14,000 Accounts Payable 14,000 Accounts Payable (¥) 14,000 $14,000 = ¥2,000,000 x $0.0070 spot rate December 31, 20X1 (Balance Sheet Date) No Entry Foreign Currency Transaction Loss 2,000 Accounts Payable (¥) 2,000 Adjust payable denominated in foreign currency to current U.S. dollar equivalent and recognize exchange loss: $16,000 = ¥2,000,000 x $0.0080 Dec. 31 spot rate - 14,000 = ¥2,000,000 x $0.0070 Oct. 1 spot rate $2,000 = ¥2,000,000 x ($0.0080 - $0.0070) April 1, 20X2 (Settlement Date) Accounts Payable (¥) 800 Foreign Currency Transaction Gain 800 Adjust payable denominated in foreign currency to current U.S. dollar equivalent and recognize exchange gain: $15,200 = ¥2,000,000 x $0.0076 Apr. 1 spot rate - 16,000 = ¥2,000,000 x $0.0080 Dec. 31 spot rate $800 = ¥2,000,000 x ($0.0076 - $0.0080) Foreign Currency Units (¥) 15,200 Cash 15,200 Acquire FCU to settle debt: $15,200 = ¥2,000,000 x $0.0076 April 1 spot rate Accounts Payable 14,000 Accounts Payable (¥) 15,200 Cash 14,000 Foreign Currency Units (¥) 15,200 27 Practice Quiz Question #2 Solution Which of the following statements is true? a. Foreign currency transactions of a U.S. Firm involve the exchange of goods from a foreign country denominated in $ U.S. b. The purchase or sale of an item is a separate transaction from the foreign currency commitment under the two transaction approach. c. Foreign currency exchange gains or losses from the revaluation of assets or liabilities denominated in a foreign currency must be recognized in the period when the exchange rate changes 28 In-class Exercise On January 1 2018, Mohammed Ltd acquires goods on credit from a supplier in Northern Ireland. The goods are shipped FOB Belfast on January 1 2018. (FOB is the abbreviation for ‘free on board’ and signifies the point at which title and control passes from the seller to the purchaser. Once control passes, the purchaser has an obligation that must be recorded.) The cost of the goods is UK£100,000 and this amount remains unpaid until 31st March 2019. Below are the exchange rates for the relevant dates. 29 In-class Exercise InDirect Date Direct Exchange Rate January 1 2018 AED1=UK£0.18 December 31 2018 AED1= UK£0.22 March 31 2019 AED1= UK£0.20 Required: Provide the required journal entries for Mohammed Ltd to record the above transaction (narrations are not required). 30  Derivatives Designated as Hedges What is a hedge? ‫اﻟﺗﺣوط ھ‬ A hedge is an investment position intended to offset ‫ﯾﮭدف إﻟﻰ‬ ‫ اﻟﻣﻛﺎﺳب اﻟﻣﺣ‬potential losses or gains that may be incurred by an ‫ﻧﺗﯾﺟﺔ‬ associated investment. 1. Hedged risk: is a foreign currency risk 2. Hedged item: is a highly probable forecast transaction (sale/buy) 3. Hedging instrument: is a foreign currency forward contract to sell/buy the foreign currency for a fixed rate at a fixed date 34  Derivatives Designated as Hedges Types of hedges? Ø Fair value hedge Ø Cash flow hedge Ø Foreign currency hedge 37  Derivatives Designated as Hedges ‫ﯾﺗم‬ w Fair value hedges are designated to hedge the ‫ا ﻟ ﻌ ﺎ دﻟ‬ exposure to potential changes in the fair value of ‫ﻟﻠﺗﻐﯾر‬ a) A recognized asset or liability such as available-for-sale ‫ا ﻟ ﻌ ﺎ دﻟ‬ ‫ﺑﮫ ﻣ‬ investments, or ‫ﻟﻠﺑﯾﻊ‬ b) An unrecognized firm commitment for which a binding ‫ﻣﻌﺗر‬ agreement exists, such as to buy or sell inventory. ‫ﻣﺛل ﺷ‬ w The net gains and losses on the hedged asset or liability and the hedging instrument are recognized in current earnings and since they are always offsetting, there will be no net impact on earnings. ‫ﯾﺗم اﻻﻋﺗراف ﺑﺎﻟﻣﻛﺎﺳب واﻟﺧﺳﺎﺋر اﻟﺻﺎﻓﯾﺔ ﻋﻠﻰ اﻷﺻول أو‬ ‫ وﺑﻣﺎ‬،‫اﻻﻟﺗزاﻣﺎت اﻟﻣﺣﻣﯾﺔ وأداة اﻟﺗﺣوط ﻓﻲ اﻷرﺑﺎح اﻟﺣﺎﻟﯾﺔ‬.‫ف ﻋﻠﻰ اﻷرﺑﺎح‬ٍ ‫ ﻓﻠن ﯾﻛون ھﻧﺎك ﺗﺄﺛﯾر ﺻﺎ‬،‫أﻧﮭﺎ ﺗﻌوض داﺋًﻣﺎ‬ 38 Fair Value Hedge 39  Derivatives Designated as Hedges w Cash flow hedges are designated to hedge the ‫ﯾﺗم ﺗ‬ ‫اﻟﺗﻌر‬ exposure to potential changes in the anticipated ‫اﻟﻧﻘدﯾ‬ cash flows, either into or out of the company, for ‫ﺧﺎرﺟ‬ ‫ﻣدﻓو‬ a) A recognized asset or liability such as future interest ‫اﻟﻔﺎﺋد‬ payments on variable-interest debt, or ‫ﻋﻣﻠﯾ‬ b) A forecasted cash transaction such as a forecasted purchase or sale. l A forecasted cash transaction is a transaction that is expected to occur but for which there is not yet a firm commitment..‫اﻟﻣﻌﺎﻣﻠﺔ اﻟﻧﻘدﯾﺔ اﻟﻣﺗوﻗﻌﺔ ھﻲ ﻣﻌﺎﻣﻠﺔ ﻣن اﻟﻣﺗوﻗﻊ ﺣدوﺛﮭﺎ وﻟﻛن ﻻ ﯾوﺟد اﻟﺗزام ﺛﺎﺑت ﺑﺷﺄﻧﮭﺎ ﺑﻌد‬ 40  Derivatives Designated as Hedges n Changes in the fair market value are separated into an effective portion and an ineffective portion. n The net gain or loss on the effective portion of the hedging instrument should be reported in other comprehensive income (OCI). n The gain or loss on the ineffective portion is reported in current earnings on the income statement. 41  Derivatives Designated as Hedges ‫اﻟﺗﺣو‬ w Foreign currency hedges are hedges in which the ‫اﻟﺗﻲ‬ hedged item is denominated in a foreign currency. ‫أﺟﻧﺑﯾ‬ w The following types of hedges of foreign currency ‫ﯾﻣﻛن‬ risk may be designated by the entity: ‫اﻟﺗﺣو‬ ‫ﺗﺣ‬-1 n A fair value hedge of a firm commitment to enter into a ‫ﺑﺎﻟدﺧ‬ foreign currency transaction. ‫ﺗﺣ‬-2 n A cash flow hedge of a forecasted foreign currency ‫أﺟﻧﺑﯾ‬ ‫ﺗﺣوط‬ transaction. n A hedge of a net investment in a foreign operation. 42  Case 1: Forward Exchange Contracts Managing an Exposed Foreign Currency Net Liability Position 1. On October 1, 20X1, Peerless Products purchases goods on account from Tokyo Industries in the amount of 2,000,000 yen. 2. This transaction is denominated in yen, and Peerless Products offsets its exposed foreign currency liability with a forward exchange contract for the receipt of 2,000,000 yen from a foreign exchange broker. 3. The term of the forward exchange contract equals six-month credit period extended by Tokyo Industries. 4. December 31 is the year-end of Peerless Products, and the payable is settled on April 1, 20X2. 43  Case 1: Timeline 10/1/X1 12/31/X1 4/1/X2 Transaction Balance sheet Settlement date date date Incur liability denominated in Obtain yen by settling forward yen. exchange contract. Sign 180-day forward exchange Pay yen to settle account payable. contract to receive yen. 44  Case 1: Rates Summary w The relevant direct exchange rates are as follows: 45  Case 1: Entries—October 1, 20X1 Entry to record the Account Payable Inventory 14,000 Accounts Payable (¥) 14,000 Purchase inventory on account: $14,000 = ¥2,000,000 x $0.0070 Oct. 1 spot rate. Entry to record the Forward Contract FC Receivable from Exchange Broker (¥) 15,000 Dollars Payable to Exchange Broker ($) 15,000 Purchase forward contract to receive 2,000,000 yen: $15,000 = ¥2,000,000 x $0.0075 forward rate. 46  Case 1: Entries—December 31, 20X1 Entry to Revalue the Forward Contract FC Receivable from Exchange Broker (¥) 400 Foreign Currency Transaction Gain 400 Adjust receivable (in yen) to current U.S. dollar–equivalent value (forward rate): $400 = ¥2,000,000 x ($0.0077 - $0.0075). Entry to Revalue the Account Payable Foreign Currency Transaction loss 2,000 Accounts Payable (¥) 2,000 Adjust payable (in yen) to current U.S. dollar–equivalent value (spot rate): $2,000= ¥2,000,000 x ($0.0080 - $0.0070). 47  Case 1: Entries—April 1, 20X2 Entry to Revalue the Forward Contract Foreign Currency Transaction Loss 200 FC Receivable from Exchange Broker (¥) 200 Adjust receivable to the spot rate on the settlement date: $200= ¥2,000,000 yen x ($0.0076 - $0.0077). Entry to Revalue the Account Payable Accounts Payable (¥) 800 Foreign Currency Transaction Gain 800 Adjust payable (in yen) to current U.S. dollar–equivalent value (spot rate): $800 = ¥2,000,000 x ($0.0076 - $0.0080). 48  Case 1: Entries—April 1, 20X2 (Continued) Dollars Payable to Exchange Broker ($) 15,000 Cash 15,000 Deliver U.S. dollars to currency broker as specified in the forward contract. Foreign Currency Units (¥) 15,200 FC Receivable from Exchange Broker (¥) 15,200 Receive ¥2,000,000 from exchange broker valued at the April 1, 20X2 spot rate. $15,200 = ¥2,000,000 x $0.0076. Accounts Payable ($) 15,200 Foreign Currency Units (¥) 15,200 Pay account payable using the ¥2,000,000 received from the exchange broker $15,200 = ¥2,000,000 x $0.0076. 49 Practice Quiz Question #3 Solution Which of the following is NOT one of the criteria for a hedge to be considered effective? a. The hedge is based on an effective interest rate. b. Documentation of the objective, strategy, and effectiveness of the hedge. c. The hedge must be highly effective through its term. d. The effectiveness of the hedge is assessed on an ongoing basis 59  Additional Considerations w A note on measuring hedge effectiveness n Effectiveness: there will be an approximate offset, within the range of 80 to 125 percent, of the changes in the fair value of the cash flows or changes in fair value to the risk being hedged. n Must be assessed at least every three months and when the company reports financial statements or earnings. ‫ ﻟﻠﺗﻐﯾرات ﻓﻲ اﻟﻘﯾﻣﺔ‬،‫ ﻓﻲ اﻟﻣﺎﺋﺔ‬125 ‫ إﻟﻰ‬80 ‫ ﻓﻲ ﻧطﺎق‬،‫ ﺳﯾﻛون ھﻧﺎك ﺗﻌوﯾض ﺗﻘرﯾﺑﻲ‬:‫اﻟﻔﻌﺎﻟﯾﺔ‬.‫اﻟﻌﺎدﻟﺔ ﻟﻠﺗدﻓﻘﺎت اﻟﻧﻘدﯾﺔ أو اﻟﺗﻐﯾرات ﻓﻲ اﻟﻘﯾﻣﺔ اﻟﻌﺎدﻟﺔ ﻟﻠﻣﺧﺎطر اﻟﺗﻲ ﯾﺗم اﻟﺗﺣوط ﻣﻧﮭﺎ‬ ‫ﯾﺟب ﺗﻘﯾﯾﻣﮭﺎ ﻛل ﺛﻼﺛﺔ أﺷﮭر ﻋﻠﻰ اﻷﻗل وﻋﻧدﻣﺎ ﺗﻘدم اﻟﺷرﻛﺔ ﺗﻘﺎرﯾر ﻋن اﻟﺑﯾﺎﻧﺎت اﻟﻣﺎﻟﯾﺔ أو‬.‫اﻷرﺑﺎح‬ 61  Additional Considerations w Hedges of a net investment in a foreign entity n A number of balance sheet management tools are available ‫اﻟﺗﺣوطﺎت اﻟﺧ‬ ‫ﯾﺗوﻓر ﻋدد‬ for a U.S. company to hedge its net investment in a foreign ‫اﻷﻣرﯾﻛﯾﺔ ﻟﻠﺗ‬ affiliate..‫أﺟﻧﺑﯾﺔ‬ n ASC 815 specifies the following for derivative financial ‫ﯾﺣدد اﻟﻣﻌﯾﺎر‬ instruments designated as a hedge of the foreign currency ‫اﻟﻣﺎﻟﯾﺔ اﻟﻣﺷ‬ exposure of a net investment in a foreign operation: ‫اﻷﺟﻧﺑﯾﺔ ﻻﺳﺗ‬ l The portion of the change in fair value equivalent to a foreign ‫ﯾﺟب اﻹﺑﻼ‬-1 currency transaction gain or loss should be reported in other ‫ﻟﻣﻛﺳب أو ﺧ‬ OCI comprehensive income..‫اﻵﺧر‬ ‫ﯾﺻﺑﺢ ﺟز‬-2 l The part of other comprehensive income resulting from a hedge ‫اﺳﺗﺛﻣﺎر ﺻﺎف‬ of a net investment in a foreign operation then becomes part of ‫اﻟﺗراﻛﻣﻲ ﻓﻲ‬ the cumulative translation adjustment in other comprehensive income. 62 Practice Quiz Question #4 Solution Which of the following is the appropriate test of hedge effectiveness? a. The hedge offsets between 80-100% of the cash flows or risk of the item hedged. b. The hedge offsets between 100-125% of the cash flows or risk of the item hedged. c. The hedge offsets between 80-125% of the cash flows or risk of the item hedged. d. The hedge offsets between 80-150% of the cash flows or risk of the item hedged. 63