Identify one example of a financial instrument

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Question - Under International Financial Reporting Standards (IFRS), some classes of financial instruments are recognized at amortized cost and others at fair value. This so-called "mixed measurement model," consisting of both the fair value and historical cost, is said to cause the problem of "mismatch," which could result in reported net income volatility exceeding the real volatility facing the firm.

Required -

a. Identify one example of a financial instrument that is recognized at amortized cost, subject to impairment tests, and one other that is recognized at fair value.

b. Sometimes financial derivatives are used as hedging instruments to reduce excess net income volatility. Discuss whether gains and losses in derivative securities are recognized in net income. Discuss in relation to cash flow hedges. Also define what is meant by cash flow hedges.

Reference no: EM132983843

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