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Interest rate risk that is hedged is a strong indicator that this is a risk that the entity was not designed to create and can be excluded from consideration. It is important that the hedging strategy be effective; otherwise, the notion that the legal entity is not designed to create interest rate risk is called into question. If the hedging strategy is considered ineffective, then the answer to this question should be ‘no’. Only an effective hedging strategy is evidence that interest rate risk is not a by-design risk of the legal entity.

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