Capital Markets School - October 2023

Internal Use Only

Fair Value vs. Cash Flow

Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all or a component of a recognized asset or liability or a highly probable forecast transaction and could affect the margin.

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Internal Use Only

Fair Value vs. Cash Flow

Key Differences: • Which RISK you are hedging • Only one is linked to an asset/liability that provides regular payments to holder • Both are used to hedge against changes in value of the asset

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