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what is hedge accounting here is an example on day one company a as a canadian private company purchased inventory from company c as a us supplier for 100 us dollar the payable is due on day 10 to reduce the risk of exchange rate company invested in a forward contract on day one unlocked a future specified rate of one us dollar equals to 1.10 canadian dollar in other words company has spent 110 canadian dollar if company didnt have the forward contract lets say the spot rate on day 10 was one us dollar equals to 1.70 canadian dollar which means company would cost 170 canadian dollar more than 110 canadian dollar so hedge accounting is to reduce the volatility of the overall portfolio the purpose of the hedge fund account is not necessarily to generate profit the point of hedging a position is to reduce the volatility of the overall portfolio there are two types of models including cash flow and fair value hedging model and each model has different approaches [Music]