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Former Member

Redesignation of a hedge relation after dedesignation

Hi treasury experts


We are using a cashflow hedge for FX-exposures together with the dollar offset method for the effectiveness test. Since sometimes a hedge relation runs erroneously out of effectiveness - especially when market quotes are close to the spot values of the FX-rates of the hedge instrument - the hedge relation is marked as ineffective, so that the fair value changes of the hedge derivative are posted to P&L.

As soon as effectiveness is realized again, we would like, that no such P&L postings occur any more, but all NPV-changes go to OCI again. Unfortunately the postings still go to the P&L, even though the effectiveness test (thm50) tells that the relation is effective (what can be seen by THMST).  Some idea what goes wrong here?


Regards, Sebastian Sachse 

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    Former Member
    Jan 13, 2015 at 02:59 PM

    Hello Sebastian,


    THM50 is essentially used to transfer the ineffective portion of the Hedging relationship. Even though in THM80 it shows as the Hedging relationship as effective, it might be a case that the HR is not 100% effective. If you run THM80 with only assessment it will show you the result of the internal effectiveness test i.e. whether the HR is effective or not. In case you select the option Measurement it will tell you what portions of the HR is effective and what portion is ineffective,


    In your case, it might be a case that a small portion of the value calculated is still ineffective which is being posted to P/L.


    After running the THM80, if you run TPM1 with Hedge management Log option clicked, the system will show you the 2 portions and their postings separately.


    Regards,

    Nikhil

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    • Former Member Former Member

      Hi Sebastian,

      Yes you can maintain Threshold % and transition speed in SPRO> FSCM>TRM>General settings > Hedge Management > Effectiveness Test>Define Calculation Types

      Add the threshold and Transition for the  calculation type used in the hedge strategy your HR.

      Regards,

      Nikhil