Explain the Terms Hedging Instrument and Hedged Item,and How Hedge

question 70

Essay

Explain the terms hedging instrument and hedged item,and how hedge accounting brings these two together.

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Definitions:

Marginal Cost

The outlay involved in the creation of an additional unit of a good or service.

Pareto Efficient

An economic state where resources are allocated in a way that it is impossible to make any one individual better off without making at least one individual worse off.

Efficiency

A measure of how well resources are used to achieve a goal, maximizing output from given inputs without waste.

Equity

The concept of fairness or justice, often discussed in the distribution of wealth, or the ownership interest in a firm.