Critical Terms Match

The critical terms or attributes between the hedged item and hedging instruments are compared, and if all the critical terms match, then the Hedge is considered effective. If any of the terms do not match, then the hedge is considered ineffective. Examples of critical terms/attributes that matches are Notional Amount, Maturity Period, and Underlying Risk.

Critical Terms are dimensional or measure parameters to a Hedging Instrument that when matches those of Hedged Items a Hedging relationship is said to have met Critical Terms of the hedging instrument.

The application looks for the availability of permissible instruments on the Hedged Items to Hedging Instruments within the relationship definition before proceeding to look for matching critical terms. You do not have to key in any inputs for matching. Because the critical terms per instrument type are known to the application and the process is automatically sequenced upon the trigger of the effectiveness test.

If there are instruments with different currencies, the Notional Amount is converted to a common reporting currency (as defined through the application UI) using the exchange rates as of the FIC MIS Date.

Note: In case the Exchange Rates are not available, the default value is considered as "1".