That said, Gary has won plenty of awards for his
hedging skills, including national champion hedge layer three times over.
Additionally, for many
hedging situations, hedge accounting serves to mitigate income volatility that would otherwise result in the absence of hedge accounting, and lesser volatility is generally seen as preferable.
We believe this topic of
hedging costs and hedge-adjusted yields will be an important topic, and is something we are monitoring closely, but it's also important to recognise the uncertainty around how
hedging costs develop.
Finally, and of special interest in this paper, there is a problem with
hedging that result from competing against rivals within the context of an oligopoly.
This includes 80% of companies that use derivatives to manage interest rate risk, 66% with active currency risk
hedging programs, and 60% that use derivatives to hedge commodity risk.
Under a fair value hedge, the gain/loss in re-measuring the
hedging instrument is recognised in profit and loss, along with the gain or loss on the hedged item.
The timing effects of
hedging transactions, even with improper identification procedures, should also be considered.