Hedge effectiveness is ascertained from:
A) an economic relationship between the hedging instrument and the hedged item.
B) the effect of credit risk does not dominate the economic relationship hedging instrument and the hedged item.
C) the hedge ratio of the hedging relationship reflects actual quantities and is consistent with the purpose of hedge accounting.
D) all of the options are correct.

Question

Quizplus · Accepted Answer

All of the options listed are correct and contribute to determining hedge effectiveness. A) An economic relationship between the hedging instrument and the hedged item is necessary in order for the hedge to be effective. B) Credit risk can impact the effectiveness of the hedge, so it is important that it does not dominate the economic relationship. C) The hedge ratio should be consistent with the underlying transaction being hedged in order to accurately reflect the effectiveness of the hedge.

Hedge Effectiveness Is Ascertained From