Why don the interest rate hedges qualify for hedge accounting?
At Aug. 31, 2004, CFC was party to interest-rate exchange agreements of $14.8 billion. The majority of CFC’s interest-rate exchange agreements use a 30-day composite commercial paper index as either the pay or receive leg. The 30-day composite commercial paper index is the best match for the CFC commercial paper that is the underlying debt and is also used as the cost basis in the CFC variable interest rates. However, the correlation between movement in the 30-day composite commercial paper index and movement in CFC’s commercial paper rates is not consistently high enough to qualify for hedge accounting. When CFC uses its commercial paper as the underlying debt, the receive leg of the interest-rate exchange agreement is based on the 30-day composite commercial paper index. CFC’s commercial paper rates are not indexed to the 30-day composite commercial paper index and CFC does not solely issue its commercial paper with 30-day maturities. CFC uses the 30-day composite commercial paper in
