eness. Where the principal terms of the hedging instrument and hedged item do not match exactly, the prospective hedge effectiveness test should be enhanced to include both qualitative and quantitative testing. Sensitivity analysis is one method that may be used to satisfy the quantitative prospective test. In practice, the principal terms approach will apply in limited cir cumstances, and is monly used when hedging foreign currency risk. Principal terms Practical approach Matched At hedge inception: qualitative testing Subsequent test date: reconfirm terms including cr edit risk assessment Unmatched At hedge inception: qualitative and quantitative testing. Sensitivity analysis may be used Subsequent test date: qualitative and quantitative testing. Sensitivity analysis may be used
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