Hedge Effectiveness Testing

Hedge Effectiveness testing consists of four criteria. Effectiveness testing is triggered by selecting the appropriate fair value definition run and the required date. While Hedge Ratio is mandatory, the user can choose between Economic Relationship, Credit Risk Dominance, or Critical Terms Match, or a combination of any of these.

Hedge Effectiveness Testing calculates the fair values for all Hedged Items and Hedging Instruments.

For a hedge to be effective, each of the three or four parameters based on the user selection has to be effective. If any one of the parameters is ineffective, then the entire hedge is ineffective.

The net Fair Value of all participating Hedged Items is calculated to perform Hedge Effectiveness Testing. The following available account types: Non-Interest Income, Taxes, None, Interest Income (Unallocated), Interest Expense (Unallocated), Equity, Dividends, Statistical, Taxes, and Use Detail Leaves, are not considered for netting.