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this is Professor Farhad in this session we would look at forward contract as a hedging instrument this topic is covered in advanced accounting is covered in international accounting and it's covered on the CPA exam the four section if you want additional lectures please visit my website or visit my youtube channel now I would like to always connect with my viewers I'd like to know them even on a personal level you could subscribe to my channel on YouTube you can connect with me on LinkedIn I'm very very active on LinkedIn you can like you can like my Facebook page accounting lectures or you can connect with me on Twitter so let's go ahead and get started about the hedging foreign exchange rate as we saw in the prior session if you viewed the prior session what we establish we establish the fact that if you are involved in foreign currency transaction if you buy or sell in a foreign currency as a result what's gonna happen is this you're gonna have a risk and what is that risk the risk is the currency could work against you the foreign currency position could works against you and you could have a substantial loss but also you could have a reward where the currency works to your favor and you could have a game well guess what you're not in the business of playing the foreign exchange rate rescue you're not interested in the risk you're not interested in the rewards but specifically you're not interested in the risk and you don't care about the reward because you're not in the business of of trading foreign currency so what you do you're gonna use hedging techniques you're gonna be hedging foreign exchange risk now how do you hatch foreign exchange risk you will use something called derivative instrument know what is a derivative instrument well basically a derivative instrument is a financial instrument basically it's a contract that provides the holder okay or the writer of you you can buy it or you can write it with the right or the obligation to participate and sum all of the price changes of another underlying value of measures that does not require the holder to own or deliver the underlying value of measure this is a long statement for what well for one thing that I need to tell you that you could have direct direct derivative instrument not only for foreign currency transaction this is only one thing you have the derivatives instrument for many other financial assets such as stocks bonds gold real estate so you could have the rivet derivatives instrument and what are they really what's gonna happen is this if the prices go up you can participate in those prices increases so that's what it gives you that option or if the prices goes down you can protect yourself depending on what position you are on okay and we will see how it works...