496Meaning of “hedging relationship”U.K.
(1)For the purposes of section 494, in relation to an open-ended investment company, a unit trust scheme or an offshore fund, there is a hedging relationship between a derivative contract (“the hedging instrument”) and an asset (“the hedged item”) so far as condition A or B is met.
(2)Condition A is that the hedging instrument and the hedged item are designated as a hedge by the company, scheme or fund.
(3)Condition B is that the hedging instrument is intended to act as a hedge of exposure to changes in fair value of a hedged item which is—
(a)a recognised asset which could affect the total net return of the company, scheme or fund, or
(b)an identified part of such an asset which is attributable to a particular risk.
(4)For the purposes of subsection (3) “the total net return” of a company, scheme or fund means its total net return calculated—
(a)in accordance with generally accepted accounting practice, or
(b)in the case of accounts prepared in a jurisdiction outside the United Kingdom, in accordance with generally accepted accounting practice in that jurisdiction.