Write a 1 page essay on Rp.Effectiveness or ineffectiveness of hedging can be measured using either the Dollar Offset or Regression Analysis methods. A highly effective hedge relationship falls within

Write a 1 page essay on Rp.

Effectiveness or ineffectiveness of hedging can be measured using either the Dollar Offset or Regression Analysis methods. A highly effective hedge relationship falls within the negative 80%-125% range. A risk hedging with a resultant cumulative dollar offset percentage above 80% indicates that the hedging has been effective (Catlere 18-20).

On the dollar offset, a performance below 80% indicates ineffectiveness of the hedging. A person may wish to hedge his products by selling them a month earlier to the predicted start of lower prices. With a better price predicted to follow the time of low prices, the businessman goes ahead and futures the hedged products at their current low prices to resell later at the expected higher price (Catlere 46). An ineffective hedging will take place when one sells his products at the current prices preempting the imminent fall of prices, but instead the prices rise. The hedged products will experience a loss as compared to the situation where they were not hedged (Rheinländer 54-5).

Swap rates or interest rates swap is the floating rate that one counterparty pays on the basis of the agreed-upon index while the other pays a permanent rate for the whole period of the contract (McFetridge 36).

Sources: university of California Medical Center Pooled Revenue Bonds, 2007 series A, B, and C, Official Statements. University of California Annual Financial Report, 2010-2011. University of California general Revenue Bonds, 2011 Series Y, Z, and AA, Official