Under US GAAP, Which of the Following Conditions Must Be Met

question 54

Multiple Choice

Under U.S. GAAP, which of the following conditions must be met to qualify for hedge accounting?

• A) There must be formal documentation of the hedging relationship.
• B) A derivative must be used specifically to hedge fair value exposure or cash flow exposure.
• C) The hedge must be effective.
• D) All of the above must be met in order to qualify for hedge accounting.

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Definitions:

Equivalent Risk

A concept in finance that refers to equating the risk level of an investment with another, for comparison or investment decision purposes.

Market Value

Market Value refers to the current price at which an asset or service can be bought or sold in a marketplace, reflecting its perceived value by participants.

Call Premium

The additional amount over the par value that a borrower must pay to redeem a bond before its scheduled maturity.