Week 5Case C11-6TO: Mark Becker, CFOFROM:________, Investment Division AccountantDATE: November 8, 2012SUBJECT: Results of hedge accounting researchFor detrainment of Rainy Day insurance company investment portfolio can hedge accounting can be usedor not. According FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,it provided specific requirements for classifying a derivative as a Hedge. Hedges under Statement No. 133 are applicable to foreign currency exchange risk in which currency exchange rates change overtime; interest rate risks, particularly for companies owing variable-rate debt instruments, and commodity risks whose future commodity prices may be quite different from spot prices. In our case if hedge accounting cannot be used, the changes in the fair value of the futures contractwill be included in net income.8 However, the changes in the fair value of the bond portfolio willcontinue to be reported as other comprehensive income, but not in net income. Note that FASB No. 133 (ASC 815) amends FASB No.115 (ASC 320) requires the gain or loss on anavailable-for-sale security designated as a hedged item to be recognized in current earnings duringthe period. The marked- to market value for the available for –sale securities was recognized in othercomprehensive income.FASB No. 133 specifies that the change in intrinsic value of fair value hedges be recognized currentlyin net earnings of the period. The difference from cash flow hedges in which the changes in intrinsicvalue were taken to other comprehensive income. It is important to note that FASB 133 does not permit hedge accounting for hedges of