An entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as:
I they hold a net long position
II they hold a net short position
III they have a documented risk management strategy
IV the manage the group of net financial assets and liabilities on a net exposure basis
v.transactions are conducted in an orderly market
A)I and III
B)II and IV
C)III and IV
D)II and V

Question

Quizplus · Accepted Answer

The statement mentions that the entity can offset and determine fair value on the net position if they hold both financial assets and liabilities on a net exposure basis and have a documented risk management strategy. Therefore, options I and II are incomplete and cannot be chosen. Option V is irrelevant since it does not relate to the specific condition needed for offsetting and determining fair value. Hence, the correct answer is C - options III and IV fulfill the conditions mentioned in the statement.

An Entity Holding Both Financial Assets and Liabilities Is Allowed