Hedge Effectiveness Calculator

Work out hedge effectiveness instantly with clear inputs, formula shown and shareable results.

About Hedge Effectiveness Calculator

The dollar offset test compares the change in hedge value with the change in the hedged exposure. Falling within the accepted band allows hedge accounting; the unmatched portion is recognised in profit as ineffectiveness.

Formula

Dollar offset test

Effectiveness = |Δ hedge value / Δ exposure value| × 100

Worked example

With the default values below, Hedge Effectiveness Calculator returns Dollar Offset Ratio of 94.000%. Change any input above and every figure here is recalculated in your browser.

Inputs used

Change In Hedge Valueminimum 0: 4,700,000
Change In Exposure Valueminimum 0: 5,000,000
Lower Effectiveness Boundaccepts 50–100 %: 80 %
Upper Effectiveness Boundaccepts 100–200 %: 125 %

Results

Dollar Offset Ratio: 94.000%
Ineffective Portion: $300,000.00
Assessment: Within the effective range — hedge accounting may apply
Share Of Exposure Offset: 94.000%

Step by step

1Values used
2Dollar offset test
3Dollar Offset Ratio= 94.000
4Ineffective Portion= 300,000.00
5Assessment= Within the effective range — hedge accounting may apply
6Share Of Exposure Offset= 94.000

Assumptions and limits

The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take inflation, tax, fees or charges or compounding frequency into account.
Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.

Frequently Asked Questions

Why does effectiveness matter for accounting?

It determines whether gains and losses can be deferred in reserves rather than hitting profit immediately.

What causes ineffectiveness?

Basis differences between the hedge and the exposure, notional mismatches and timing differences in cash flows.