The type of hedge which is of the exposure to the variability in cash flows that is attributable to a particular risk that is associated with all, or some component of, a recognised asset or liability is a:
A) fair value hedge
B) cash flow hedge
C) hedge of a net investment in a foreign operation
D) all of the above

Question

Quizplus · Accepted Answer

The type of hedge described in the question is a cash flow hedge. A fair value hedge is used to mitigate the exposure to changes in the fair value of a recognised asset or liability, while a hedge of a net investment in a foreign operation is used to manage the foreign exchange risk associated with holding a subsidiary or investment in a foreign entity. Therefore, B is the best choice as it is the only option that accurately describes the type of hedge in question.

The Type of Hedge Which Is of the Exposure to the Variability