Which of the following describes the hypothetical derivative?

You implement hedge management and hedge accounting.

Which of the following describes the hypothetical derivative?
A . It is used to simulate accounting entries for hedging instruments.
B . It is the link between the hedged item and hedging instrument.
C . It is the representation of the hedging instrument.
D . It is the representation of the hedged item.

View Answer

Answer: D

Explanation:

The hypothetical derivative is a representation of the hedged item that is used to measure the effectiveness of a hedging relationship. It is a hypothetical financial instrument that has terms and conditions that are identical to those of the actual hedging instrument, except for the notional amount and the maturity date.

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