In order for a derivative to be considered a hedge, it must be mostly effective in offsetting a substantial amount of risk exposure associated with changes in fair values or cash flows of the hedged item.

Question

Quizplus · Accepted Answer

For a derivative to qualify as a hedge, accounting standards require it to be highly effective in offsetting the changes in fair value or cash flows attributable to the hedged risk, thereby substantially reducing the company's exposure to fluctuations in the hedged item's value or cash flows.

In Order for a Derivative to Be Considered a Hedge