In short
A fair value hedge protects against changes in the fair value of a recognized asset or liability, or a firm commitment, that are attributable to a particular risk.
Key takeaways
- Gains and losses on both the hedging derivative and the hedged item (for the hedged risk) are recognized in earnings, so they largely offset.
- The hedged item's carrying amount is adjusted for changes in fair value from the hedged risk.
- Hedges of forecasted transactions are cash flow hedges, not fair value hedges.
Where it's tested
BAR: Derivatives & Hedge Accounting — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a qualifying fair value hedge, the gain or loss on both the derivative and the hedged item attributable to the hedged risk are: