Which of the Following Is Not a Fair Value Hedge

question 27

Multiple Choice

Which of the following is not a fair value hedge?

• A)An interest rate swap to synthetically convert fixed-rate debt (for which interest rate changes could change the fair value of the debt) into floating-rate debt.
• B)A futures contract to hedge changes in the fair value (due to price changes) of aluminum, sugar, or some other type of inventory.
• C)An interest rate swap to synthetically convert floating-rate debt (for which interest rate changes could change the cash interest payments) into fixed-rate debt.
• D)All of these are fair value hedges.

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Definitions:

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than another entity, leading to potential gains from trade.

Production Relationships

The connections between various factors of production, including labor, capital, and technology, and how they influence the output of goods and services.

Production Possibilities Frontier

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Trade Pattern

A trade pattern refers to the systematic way in which countries engage in international trade, determined by factors like comparative advantage, geographic location, and economic policies.