A Fair Value Hedge is a risk management strategy used in accounting and finance. Specifically, it involves entering into a hedging instrument, such as a derivative, to counterbalance changes in the fair value of an asset or liability. For example, suppose a company holds a fixed-income investment whose value may fluctuate with changes in market interest rates. In this case, the company might use an interest rate swap or similar derivative to mitigate the risk of the fair value changes. Another example is a company hedging against the fair value changes of a firm commitment, such as a contract to purchase or sell a good in the future at a fixed price. The main goal of a fair value hedge is to protect the company's financial statements against volatility caused by fluctuations in fair value. The effectiveness of this hedging strategy is measured and documented to ensure it aligns with accounting standards for hedge accounting.