Risk glossary

 

Hedge effectiveness

In US accounting terminology, a criteria that must be met in order to use hedge accounting for US financial reporting. This provision has at times proven problematic in the energy industry where partial hedges for such exposure components as basis risk are widely used. Under the rules FAS 133 when testing for hedge effectiveness, only interest rate exposures can be broken down into their component parts.

* see also Financial Accounting Standards Board Statement 133 (FAS 133)

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