Nishizawa Shigeru

The purpose of this paper is to propose the accounting measurement and control of currency option transactions, especially call option transaction and written option transaaction for hedging. It illustrates the transaction models about protective-put and covered-call-writing for hedging. These transactions have each economic subustance. Protective-put makes a nearly perfect hedge for the hedged item, because its intrinsic value increases by the same amounts as the losses from the hedged item. On the other hand, covered-call-wrting has a chance to gain, but it hedges only within the premium at the sacrifice of gains. Then, there is a possibility to suffer indefinite losses from unfavarable shift of currency rate. Accounting for protective-put should reflect the economic substance of the transaction, and measure the intrinsic value increased by the same amounts as the losses from the hedged item. If managers can use the accounting informations to control these transactions, protective-put makes a nearly perfect hedge for the hedged item as long as the same currency, but managers should find present position of gains or losses in covered-call-wrting.