169 How We Are Governed Financial Statements Shareholders’ Information Additional Information 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Summary of significant accounting policies (cont’d.) (g) Financial assets and liabilities (cont’d.) (ii) Derivatives recorded at fair value through profit or loss (cont'd.) The Bank enters into derivative transactions with various counterparties. These include equity swaps, forward foreign exchange contracts and options on foreign currencies and equities. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. (iii) Embedded derivatives An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided that, in the case of a non-financial variable, it is not specific to a party to the contract. A derivative that is attached to a financial instrument, but is contractually transferable independently of that instrument, or has a different counterparty from that instrument, is not an embedded derivative, but a separate financial instrument. Derivatives embedded in financial liability or a non-financial host are separated from the host and accounted for as separate derivatives if: a) the economic characteristics and risks are not closely related to the host; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative (as defined above); and c) the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category. Financial assets are classified based on the business model and SPPI assessments as outlined in Notes 3.4(g)(i) (1) and 3.4(g)(i)(2).
RkJQdWJsaXNoZXIy NDgzMzc=