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Evaluating the performance of the hedging strategy is the only way to determine whether the techniques applied are correct or otherwise. A six months time frame is usually enough to begin to see the effects of the strategy and to decide whether it is wrong.

During the evaluation process, it is important to keep the senior management informed up to date on the progress and let them know if any changes are necessary. Their support will be necessary in implementing required changes.

The performance measurement of an exposure relates to comparing the exposure budgeted rate with the exposure retirement rate after recognizing the profit/loss on market operations completed during the period of the exposure. The net result of all such performance measurements (say once in a month) guides the management to be aware of the potential profit or loss hidden on the exposures and to gauge the market risk.

Performance measurement is the most required step in the process of risk management.

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