If a Derivative Is Not Designated as a Hedge

question 1

Multiple Choice

If a derivative is not designated as a hedge:

• A) the change in market value must be recognized in net income when it changes.
• B) the change in market value is not recognized in net income.
• C) the change in fair value is not recognized in net income.
• D) the change in fair value must be recognized in net income when it changes.

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Definitions:

Perfect Price Discrimination

A pricing strategy where a seller charges the highest price that each consumer is willing to pay, effectively capturing all consumer surplus as profit.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive, a measure of producers' benefit.

Marginal Cost

The change in total cost that arises when the quantity produced is incremented by one unit, essentially the cost of producing one additional unit of a good or service.

Total Revenue

The total amount of money a firm receives from the sale of its goods and services, calculated as the price per unit times the number of units sold.