Hedge Effectiveness

The extent to which a hedge transaction results in the offsetting changes in fair value or cash flow that the transaction was and is intended to provide as identified by the hedging entity. For example, a hedge is considered to be highly effective if the changes in fair value or cash flow of the hedged item and the hedging derivative offset each other to a significant extent. Under FAS 133 only the portion of a transaction that is considered effective may qualify for hedge accounting treatment.