Hedge effectiveness

Critical terms matching: This method consists of comparing the critical terms of the hedging instrument with those of the hedged item. It is a qualitative method of assessing hedge effectiveness. If the critical terms of the hedging instrument and the hedged item - the nominal amount, maturity and underlying - match or are closely aligned, then in such case it may be possible to use the critical terms matching approach to qualitatively access hedge effectiveness.Dollar offset method: This method involves comparing the change in fair value of the hedged instrument with the change in the fair value of the hedged item attributable to the hedged risk.








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