2.4 Financial Assets and Liabilities Held for
Trading
2.5 Financial Assets and Financial Liabilities
Designated at Fair Value
2.6 Day One Gains/Losses
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
2. Derivatives Used for Cash Flow Hedge Accounting
Changes in the fair value of derivatives that are designated (and
qualify) as cash flow hedges and that are effective in relation to
the hedged risks are recognized in othercomprehensive income.
Ineffective elements of the changes in the fair value of derivatives
are recognized in the statement of income. If a forecast
transaction or a recognized liability results in the recognition of a
non-financial asset or liability, any deferred profits or losses
included in other comprehensive income are transferred to the
initial carrying amount (cost) of the asset or liability. In all other
cases, deferred amounts included in other comprehensive
income are taken to the statement of income in 'Gains/ (losses)
on financial assets and liabilities at fair value through profit or
loss'in the periods in which the hedged recognized liability or the
forecast transaction was recognized in the statement of income.
3. Derivatives Used for Net Investment Hedge Accounting
The hedging instruments used to hedge net investments in
foreign operations are measured atfair value, with changes in the
fair value being recognized in other comprehensive income for
the portion that is determined to be an effective hedge. Changes
in the hedged equity instrument resulting from exchange-rate
fluctuations are also recognized in othercomprehensive income.
Gains and losses accumulated in other comprehensive income
are reclassified to profit or losses when the equity instrument is
disposed of.
4. Costs of Hedging
The cross currency basis spreads of cross currency interest rate
swaps in hedge accounting relationships designated with issued
bonds in foreign currency is excluded from designation.The cross
currency basis spread volatility is taken through OCI as costs of
hedging and is reclassified to profit or loss in the same periods as
when the hedged expected future cash flows affect profit or loss
till maturity ofthe issued bond (time period ofthe related hedged
item).
Although derivatives are used as economic hedges under
Rabobank's managed risk positions, certain derivative contracts
do not qualify for hedge accounting underthe specific IFRS rules.
Interest on derivatives held for economic hedging purposes are
shown under interest expense, both the receive and pay leg ofthe
derivative.
Financial assets held for trading are financial assets acquired with
the objective of generating profit from short-term fluctuations in
prices or trading margins or they are financial assets that form
part of portfolios characterized by patterns of short-term profit
participation. Financial assets held for trading are recognized at
fair value based on listed bid prices and all realized and unrealized
results therefrom are recognized under 'Gains/ (losses) on
financial assets and liabilities at fair value through profit or loss'.
Interest earned on financial assets is recognized as interest
income. Dividends received from financial assets held for trading
are recognized as 'Gains/ (losses) on financial assets and liabilities
at fair value through profit or loss'.
Financial liabilities held for trading are mainly negative fair values
of derivatives and delivery obligations that arise on the short
selling of securities. Securities are sold short to realise gains from
short-term price fluctuations. The securities needed to settle
short sales are acquired through securities lending and
repurchasing agreements. Securities sold short are recognized at
fair value on the reporting date.
On initial recognition, certain financial assets (including directand
indirect investments in venture capital and excluding assets held
for trading) and certain liabilities may be included as 'Financial
assets and liabilities designated at fair value' if this accounting
eliminates or significantly reduces any inconsistent treatment
that would otherwise have arisen upon measurement ofthe
assets or liabilities or recognition of profits or losses on the basis
of different accounting policies.
Interest earned and due on such assets and liabilities is recognized
as interest income and expense, respectively. Other realized and
unrealized gains and losses on the revaluation of these financial
instruments to fair value are included under 'Gains/ (losses) on
financial assets and liabilities at fair value through profit or loss'
except for fair value changes due to own credit risk of financial
liabilities designated at fair value. These fair value changes after
tax are presented in othercomprehensive income under line item
'Fair value changes due to own credit risk on financial liabilities
designated at fair value'. Presenting these effects of changes in
credit risk in other comprehensive income does not create or
enlarge an accounting mismatch in profit or loss.
When using fair value accounting at the inception of a financial
instrument, any positive or negative difference between the
transaction price and the fair value (referred to as 'day one gain/
loss') is accounted for immediately under 'Gains/ (losses) on
financial assets and liabilities at fair value through profit or loss'
where the valuation method is based on observable inputs from
active markets. In all other cases, the entire day one gain/loss is
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