2.3 Derivatives and Hedging About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements Up until the system's termination on December 11, 2018, the remaining participants were: Coöperatieve Rabobank U.A De Lage Landen International B.V. Rabo Factoring B.V. (previously named De Lage Landen Trade Finance B.V.) Rabo Lease B.V. (previously named De Lage Landen Financial Services B.V.) Rabo Direct Financiering B.V (previously named De Lage Landen Financiering B.V.) 2.2.2 Investments in Associates and Joint Ventures Investments in associates and joint ventures are initially recognized at cost (including goodwill) and subsequently accounted for using the equity method of accounting. Its share of post-acquisition profits and losses are recognized in the income statement and its share of post-acquisition movements in reserves are recognized directly in other comprehensive income. The cumulative post-acquisition movements are included in the carrying amount of the investment. Associates are entities over which Rabobank can exercise significant influence and in which it generally holds between 20% and 50% of the voting rights but does not have control. A joint venture is an agreement between one or more parties under which the parties jointly have control and are jointly entitled to the net assets under the agreement. Unrealized profits on transactions between Rabobank and its associates and joint ventures are eliminated in proportion to Rabobank's interest in the respective associates and joint ventures. Unrealized losses are also eliminated unless the transaction indicates that an impairment loss should be recognized on the asset(s) underlying the transaction. Derivatives generally comprise foreign exchange contracts, currency and interest rate futures, forward rate agreements, currency and interest rate swaps and currency and interest rate options (written or acquired). Derivatives are recognized at fair value (excluding transaction costs) determined on the basis of listed market prices (with mid-prices being used for EUR, USD and GBP derivatives that have a bid-ask range), prices offered by traders, discounted cash flow models and option valuation models based on current market prices and contract prices for the underlying instruments and reflecting the time value of money, yield curves and the volatility of the underlying assets and liabilities. Derivatives are included under assets if their fair value is positive and under liabilities if their fair value is negative. Derivatives Not Used for Hedging Realized and unrealized gains and losses on derivatives held for trading are recognized at fair value in 'Gains/ (losses) on financial assets and liabilities at fair value through profit or loss'. Derivatives Used for Hedging Derivatives are used for asset and liability management of interest rate risks, credit risks and foreign currency risks. Rabobankapplies IFRS 9 for non-portfolio hedge accounting. IFRS 9 does not offer a solution for fair value hedge accounting for a portfolio hedge of interest rate risk. Rabobankopted to usethe accounting policy choice of IFRS 9 to continue to apply the IAS 39 EU carve-out for such portfolio hedge accounting. At the time of inception, derivatives are designated as one of the following: (1) a hedge of the fair value of an asset, a group of assets or a liability in the statement of financial position (fair value hedge); (2) a hedge of future cash flows allocable to an asset or liability in the statement of financial position, an expected transaction or a firm commitment (cash flow hedge); or (3) a hedge of a net investment in a foreign operation (net investment hedge). Fledge accounting is applied for derivatives designated in this manner provided that certain criteria are met, including the following: There must be formal documentation ofthe hedging instrument, the hedged item, the objective ofthe hedge, the hedging strategy, and the hedge relationship; Documentation ofthe assessment and analysis ofthe sources of hedge ineffectiveness and howthe hedges ratio is determined (IFRS 9);The hedge must be expected to be effective, within 80% to 125% (IAS 39), in covering changes in the hedged item's fair value or the cash flows allocable to the hedged risks during the entire reporting period; The hedge must be continuously effective from the moment of its inception;There is an economic relationship between the hedged item and hedging instrument (IFRS 9). 1. Derivatives Used for Fair Value Hedge Accounting Changes in the fair value of derivatives that are designated as fair value hedges and are effective in terms ofthe hedged risks are recognized in the statement of income in 'Gains/ (losses) on financial assets and liabilities at fair value through profit or loss', together with the corresponding changes in thefair values ofthe assets or liabilities hedged. As and when the hedge no longer meets the criteria for hedge accounting (applying the fair value hedge model), the cumulative adjustment to the fair value of a hedged interest-bearing financial instrument is amortized through profit and loss over the relevant interest repricing period. Annual Report 2018 - Consolidated Financial Statements 138

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Annual Reports Rabobank | 2018 | | pagina 140