Question
__ is a financial liability whose cash flows are expected to offset the cash flows of a designated hedge item. Select the correct answer from the options below Hedging instrument Hedging item Hedging produce Hedging financials
Answer
3.3
(232 Votes)
Rhian
Professional · Tutor for 6 years
Answer
Hedging instrument.
Explanation
## Step 1:A financial item with predictable cash flows destined to balance (offset) the cash flows from another designated hedging item mentioned here points to a financial mechanism. This can be simply assumed as an instrument or tool used to offset potential losses. ## Step 2:Based on basic finance and investment knowledge, hedging traditionally has two critical components, the “hedging instrument” and the “hedged item”. The hedged item is usually the exposure or risk that wants to be hedges within the financial structure/turmoil. The hedging instrument is used to hedge this risk brought about by the hedged item. Its goal is to lessen the risk brought by the hedged item within the financial structure.## Step 3:By this question's context, the theory suggests that the hedging instrument is more suitable than other options, paving the way to the correct selection.