Over hedge means There is ineffectiveness, under-hedge means NO ineffectiveness. But why in the Second Example, under-hedge and ineffectiveness? I am confused… this is too hard to understand…
Replace the word ineffectiveness with "excess effectiveness" and "deficient effectiveness". If there is an excess of effectiveness (instrument change > item change), the excess is taken to P/L. If there is a deficiency in the effectiveness (instrument change < item change), there is nothing to be taken to P/L. Essentially, "ineffectiveness" can be thought of as "imperfection" (in relation to the change in instrument offsetting the change in item). Depending on the situation (over/under hedge), there will be a type of ineffectiveness/imperfection.
so complex... At the start, i can read every singly word, but don't understand at all when put them together... now is much better. thanks
Most difficult part of Financial instruments
Over hedge means There is ineffectiveness, under-hedge means NO ineffectiveness. But why in the Second Example, under-hedge and ineffectiveness? I am confused… this is too hard to understand…
Replace the word ineffectiveness with "excess effectiveness" and "deficient effectiveness". If there is an excess of effectiveness (instrument change > item change), the excess is taken to P/L. If there is a deficiency in the effectiveness (instrument change < item change), there is nothing to be taken to P/L.
Essentially, "ineffectiveness" can be thought of as "imperfection" (in relation to the change in instrument offsetting the change in item). Depending on the situation (over/under hedge), there will be a type of ineffectiveness/imperfection.
Thanks for this video
Thankyou!!
Who said accounting isn't sexy???