FIN.14:4.5 - Select a design and retain the condition for changing it

Eliminate alternatives that cannot meet the required outcome under the accepted decision conditions or cannot be funded on obtainable terms. Compare the remaining protection, residual exposures, flexibility, implementation demands and price. A single largest expected receipt or lowest premium is insufficient if it trades away the outcome the hedge was meant to preserve. Conversely, maximal protection can cost more than the decision warrants.

State the chosen quantity, reference, dates and instrument behavior in terms that treasury can act on. Include the existing exposure, what remains unprotected, required premium or collateral resources, and the conditions that require reconsideration. An adequate existing dealing mandate can authorize ordinary implementation within those bounds. A proposed departure in amount, risk or rights returns through FIN.16 or the applicable decision authority.

Explain what happens if the exposure changes after commitment. Recover the current contract and its close, resize, novation or exercise possibilities before treating the original amount as adjustable. Terminating a hedge crystallizes its current obligations or value under the terms; entering an opposite trade can leave two contracts and two counterparties rather than extinguish the first. Compare continuing, modifying or closing on the remaining exposure and current costs. FIN.17 supplies changed facts, FIN.13 supplies the resulting exposure and FIN.15 verifies any actual contractual or settlement effect.

At that later decision date, compare the cash and rights still available under each attainable action. A current negative contract value is an existing economic burden; determine when and how each alternative pays or carries it. Keep that settlement amount separate from a new amendment charge. Earlier nonrefundable fees common to the alternatives are already incurred, while new dealing, funding and termination costs belong in the comparison. If an exit amount already settles the quoted contract value, adding that same value again would double count it.

Build a dated account for collateral released, applied or retained by the change. A promised release after an amendment payment cannot fund the payment without an available bridge. Record the old duty that is extinguished and the duty that remains, then recalculate residual exposure and cash. This permits a smaller hedge to be the preferred available revision even though a new hedge chosen before the original commitment would have had different terms.

Keep economic protection and reporting qualification distinct. If the decision relies on a particular hedge-accounting treatment, obtain the applicable designation, documentation, measurement and ongoing conditions from the responsible accounting specialist. The combined financial comparison can be useful without asserting that treatment. Actual enforceability, tax and authority similarly remain supplied conditions where they change the use.