In a credit forward agreement hedge, the loss on the balance sheet cash position is offset completely by the gain on the off-balance-sheet credit forward agreement if the characteristics of the benchmark bond and the bank's loan to the borrower are the same.

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Quizplus · Accepted Answer

This is true as a credit forward agreement hedge is designed to offset the potential loss on the balance sheet position with the gain on the credit forward agreement, assuming the benchmark bond and borrower loan have the same characteristics such as interest rate and duration.

In a Credit Forward Agreement Hedge, the Loss on the Balance