This guidance applies to periods of account starting on or after 1 January 2015 where the company has elected for regulation 7 to apply.

Application of regulation 7 to different types of hedge

Companies can only elect into regulation 7 where the currency contract is hedging something that is yet to happen (an ‘anticipatory hedge’). This may be a firm commitment of the company (such as a contract that will result in the company having to pay for trading stock at a future date), or a highly probable forecast transaction. The regulation does not apply if the currency contract hedges foreign exchange risk on an existing asset or liability – for example, it will not apply to a forward currency contract hedging an existing loan.

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