2.10 Cash and Cash Equivalents
2.11 Offsetting Financial Assets and
Liabilities
2.12 Foreign Currency
2.13 Interest
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
does not qualify for derecognition, Rabobank's contractual rights
are not separately recognized as derivatives if recognition ofthese
instruments and the transferred asset, or the liability arising from
the transfer, were to result in the double recognition of the same
rights and obligations.
Profits and losses on securitizations and sale transactions depend
partly on the carrying amounts of the assets transferred. The
carrying amounts ofthese assets are allocated to the interests
sold and retained using the relative fair values ofthese interests
on the date of sale. Any gains and losses are recognized through
profit and loss at the time of transfer. The fair value of the
interests sold and retained is determined based on listed market
prices or as the present value of the future expected cash flows
based on pricing models that involve several assumptions
regarding credit losses, discount rates, yield curves, payment
frequency or other factors.
Cash equivalents are highly liquid short-term assets held at
central banks to meet current cash obligations rather than for
investment or other purposes. These assets have terms of less
than 90 days from inception. Cash equivalents are readily
convertible to known amounts of cash and are subject to
insignificant risk of changes in value.
Where there is legal right to offset recognized amounts and it is
intended to settle the expected future cash flows on a net basis
or to realize the asset and settle the liability simultaneously,
financial assets and liabilities are offset and the net amount is
recognized in the statement of financial position. This relates
predominantly to derivatives and reverse repurchase
agreements. The offsetting of taxes is addressed in Section 2.26.
Foreign Entities
Transactions and balances included in the financial statements
of individual entities within Rabobank Group are reported in the
currency that best reflects the economic reality of the individual
entity's underlying operating environment (the functional
currency).
The consolidated financial statements are presented in euros,
which is the parent company's functional currency. The
statements of income and cash flows of foreign operations are
translated into Rabobank's presentation currency at the
exchange rates prevailing on the transaction dates, which
approximatethe average exchange ratesforthe reporting period,
and the statements offinancial position are translated at the rates
prevailing at the end of the reporting period. Exchange
differences arising on net investments in foreign operations and
on loans and other currency instruments designated as hedges
ofthese investments are recognized in other comprehensive
income. On sale of a foreign operation, these translation
differences are transferred to the statement of income as part of
the profit or loss on the sale.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are recognized as the assets and liabilities of the
foreign entity, and are translated at the prevailing rate at the end
of the reporting period.
Foreign Currency Transactions
Transactions in foreign currencies are translated into the
functional currency at the exchange rates prevailing on the
transaction dates. Differences arising on the settlement of
transactions or on the translation of monetary assets and liabilities
denominated in foreign currencies are recognized in the
statement of income as foreign exchange gains and losses and
differences that qualify as net investment hedges are recognized
in other comprehensive income. Translation differences on non
monetary items measured at fair value through profit or loss are
recognized as part of the fair value gains or losses. Translation
differences on non-monetary assets at fair value through other
comprehensive income are included in the revaluation reserves
for equity instruments at fair value through other comprehensive
income.
Interest income and expense are recognized in the statement of
profit or loss using the effective interest method. The effective
interest method is a method used for calculating the amortized
cost of a financial asset or a financial liability and for allocating the
interest income or interest expense to the relevant period. The
calculation includes all fees paid or received between parties to
the contract that are an integral part of the effective interest rate,
transaction costs, and all other premiums or discounts. Interest
income shall be calculated by applying the effective interest rate
to the gross carrying amount of a financial asset except for credit-
impaired financial assets. For those financial assets, Rabobank
applies the effective interest rate to the amortized cost of the
financial asset in subsequent reporting periods. Interest income
on financial assets using the effective interest method includes
interest income on 'Cash and cash equivalents', 'Loans and
advances to credit institutions', 'Loans and advances to
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