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Dear Chris,
I hope you are doing warm in cold weather. I want to ask what is hedging ratio? I know it is one of the effectiveness criteria for hedge accounting, but I don’t know how it works.
Can you provide small numerical example?
Regards,
EhsanHi Ehsan,
I’ve been freezing these lst few days in the UK but it could have been worse. At least I’ve not been in America where it has been ridiculously cold recently.
The hedging ratio is possibly something that is a bit more related to P4, in that it looks at how much of an asset/liability is being hedged by the use of hedging instruments. Check out the following link https://www.investopedia.com/terms/h/hedgeratio.asp
Try not to get it confused with the old rule in financial instruments that looked at the hedge efficiency which was the change in fair value of the item compared to the change in fair value of the instrument, and it needed to be within some crazy 80% – 125% efficiency range.
Hope that helps and that you’re doing well.
Thanks
Thanks, Chris,
Is hedging ratio important for P2? Can it crop up in the exam? Did it come in past?
Regards,
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