Fair Value Hedging

In this short whiteboard video, we provide an explanation of the economics behind and accounting for a fair value hedge.
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[@Dorondo]

I'm new to the whole concept of Hedge Accouting, but if you eliminate the risk of the 5% fixed rate debt, you are still subject to risk stemming from the 3M Libor, no? You're trading one risk for another?

[@olalalap]

Floating rate risk - 3M LIBOR risk is minimal and also if if rates to fall you will have lower rate reset in 3 months

[@SelimTargay]

Yes. The idea is that you can use such instruments to restructure your interest expenses to fit the current market.

[@PoweiKao]

Or you can go buy a 2.5% interest swap and mitigate half of the risk to some other market interest rates.