A fair value hedge protects the company against
A) errors in valuation of derivative instruments.
B) a future transaction that has not yet been recognized.
C) an existing exposure related to an existing asset or liability.
D) fluctuations in exchange rates.

Question

Quizplus · Accepted Answer

A fair value hedge is a hedge of an existing exposure related to an existing asset or liability. The purpose of a fair value hedge is to protect the company from changes in the fair value of the asset or liability being hedged. It is commonly used to hedge interest rate risk, commodity price risk or foreign currency risk.

A Fair Value Hedge Protects the Company Against