Documentation, Hedge Effectiveness, Testing

Hedge effectiveness is the test applied to a hedging instrument to ascertain whether it will be eligible for hedge accounting. Hedge accounting allows entities to override the normal accounting treatment for derivatives (fair value through profit or loss) and hence avoid much of the volatility that would arise if the derivative gains and losses were recognized in the income statement, as required by FAS 133, IAS 39 or AS 30 accounting principles.

Pyxis Provides its Hedge Effectiveness services to Corporate Clients to adopt and follow Hedge Accounting. Pyxis assist its client in recognition and measurement of the financial instruments under the Hedge Accounting standard

Pyxis provides its assistance during following Phases:

Phase 1 – Hedge Designation

• Designation and Documentation:
  Identification and Segregation of risk, identify hedge suitability, hedge designation and associated documentation.
• Prospective Testing for Effectiveness:
  Critical Terms Comparison, Regression Analysis and Scenario Analysis

Phase 2 – Hedge Maintenance

• Retrospective Hedge Assessment / Measurement:
  Dollar Offset Test (Cumulative or Period on Period basis), Variance Reduction Method.
  
• Assessment of Prospective Effectiveness:
  Critical Terms Comparison, Regression Analysis and Scenario Analysis

Phase 3 – Hedge Termination

• Cause definition for Hedge Termination:
  Identify cause of hedge termination, re-designate hedging relationship or identify new hedge, re-designate the hedge.