An Advantage of a Fair Value Hedge Is That

question 6

Multiple Choice

An advantage of a fair value hedge is that:

• A)​gains or losses on the derivative hedging instrument and the offsetting gains or losses on the hedged items are both recognized currently in earnings.
• B)​gains or losses on hedges of firm commitments are reported in other comprehensive income because the anticipated cash flows have not been recognized in earnings.
• C)​documentation is not necessary for fair value hedges.
• D)​a bank may use a fair value hedge to hedge the risk that a customer's loan will be prepaid.

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Definitions:

Budgeted Sales

Budgeted Sales represent the anticipated sales revenue of a business, based on forecasted selling quantities and prices for a specific period.

Cash Collections

The process of gathering all payments or monetary amounts received from customers over a period.

Accounts Receivables

Money owed to a company by its customers for goods or services that have been delivered but not yet paid for.

Selling and Administrative

Expenses related to the selling of products and the administration of business operations, excluding manufacturing costs.