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Chapter 11

8.5 Effectiveness

Hedge accounting can only be used if the hedging relationship meets
all effectiveness requirements. In the examples so far, it has been
assumed that this is the case.

According to IFRS 9, a hedge is effective if:

 ‘there is an economic relationship between the hedged item and the
hedging instrument

 credit risk does not dominate the value changes that result from the
relationship between the hedged item and the hedging instrument

 the hedge ratio is the same as that resulting from the quantity of the
hedged item that the entity actually hedges and the quantity of the
hedging instrument that the entity actually uses to hedge that quantity of
hedged item’ (IFRS 9, para 6.4.1).

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