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:

Variable-rate

A term used to describe a financial instrument or system where the interest rate can change over time based on predetermined conditions or an index.

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An air suspension.