Derivative Instruments Acquired to Hedge Exposure May Be Classified as Either

question 8

Essay

Derivative instruments acquired to hedge exposure may be classified as either a fair value hedge or a cash flow hedge.Distinguish between the two types of hedges.

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Definitions:

Oxidation-Reduction Reaction

Reaction in which one molecule is oxidized and another is reduced.

Charges

An amount or fee levied for a service, or the distribution of electrical energy.

Hydrogen Bonds

Weak bonds between molecules or within parts of a single molecule resulting from the attraction between a hydrogen atom and a more electronegative atom.

Surface Tension

A physical property of the surface of a liquid that makes it behave as though it is covered by a stretched elastic membrane.