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The starting point for risk management and hedging lies in understanding a corporation’s exposure to different risks. Hedging is vital for corporate risk management, involving reducing the exposure of the company to particular risks. Hedge effectiveness testing permits firms to assess if they match the timing of the gains and losses of hedged items and their hedging derivatives. In principle, a hedge is highly effective if the changes in fair value or cash flow of the hedged item and the hedging derivative offset each other to a significant extent. This article reviews the concepts of accounting and economic hedging, and presents the requirements for testing the hedge effectiveness.

Item Type: MPRA Paper -

Original Title: Issues on Hedge Effectiveness Testing-

Language: English-

Keywords: hedge accounting, hedging effectiveness, hedging ineffectiveness, highly effective, effectiveness test-

Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment DecisionsM - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting-

Autor: Bunea-Bontaş, Cristina Aurora


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