CHAPTER 3
Accounting for Fair Value Hedges
About This Chapter
Fair value hedges are used to hedge price risk on existing assets, liabilities, and firm commitments. Companies that use a fair value hedge want to manage the price risk of the change in fair value of the hedged item. Derivative instruments are useful in unlocking price risk due to the changing market conditions that will impact the value of the existing asset, liability, or firm commitment.
Accounting for fair value hedges results in recording in the financial statements the fair value of the derivative instrument for each reporting period and the changes in the fair value of the hedged item. These offsetting amounts, provided the hedge is highly effective, are recorded on the balance ...
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