All of the following are examples of a fair value hedge, except:
A) a forward contract to sell US$ hedging a recognised trade receivable in US$.
B) a forward contract to buy US$ hedging a highly probable purchase of inventory in US$.
C) a forward contract to buy US$ hedging a recognised trade payable in US$.
D) a forward contract to sell US$ hedging a recognised loan receivable in US$.

Question

Quizplus · Accepted Answer

A fair value hedge is used to hedge against changes in the fair value of an asset, liability, or an unrecognized firm commitment, not against forecasted or highly probable future transactions. Choice B, which involves hedging a highly probable purchase of inventory, is an example of a cash flow hedge, not a fair value hedge.

All of the Following Are Examples of a Fair Value