The hedge effectiveness criteria prescribed in AASB 139 have made which type of financial instrument much less effective as a potential hedging instrument?

Question

Quizplus · Accepted Answer

The hedge effectiveness criteria in AASB 139 require a high degree of correlation between the changes in the value of the hedging instrument and the changes in the value of the hedged item. Options, due to their nature, do not always exhibit a strong correlation with the underlying asset, which makes them less effective as hedging instruments compared to other types of financial instruments such as swaps, forward-contracts, and futures contracts.

The Hedge Effectiveness Criteria Prescribed in AASB 139 Have Made