Page 191 - TSMC 2018 Annual Report

13. HEDGINGFINANCIALINSTRUMENTS
2018
Financial assets- current
Cash flow hedges
Forward exchange contracts
Financial liabilities- current
Fair value hedges
Interest rate futures contracts
Cash flow hedges
Forward exchange contracts
Fair value hedge
December 31, 2018
$ 23,497
$ 153,891 1,941 $ 155,832
The Company entered into interest rate futures contracts, which are used to partially hedge against the price risk caused by changes in interest rates in the Company’s investments in fixed income securities. The hedge ratio is adjusted in response to the changes in the financial market and capped at 100%.
On the basis of economic relationships, the Company expects that the value of the interest rate futures contracts and the value of the hedged financial assets will change in opposite directions in response to movements in interest rates.
The main source of hedge ineffectiveness in these hedging relationships is the credit risk of the hedged financial assets, which is not reflected in the fair value of the interest rate future contracts. No other sources of ineffectiveness emerged from these hedging relationships. Amount of hedge ineffectiveness recognized in profit or loss is classified under other gains and losses.
The following tables summarize the information relating to the hedges of interest rate risk as of December 31, 2018.
Hedging Instruments
US treasury bonds interest rate futures contracts
Hedged Items
Financial assets at FVTOCI
Contract Amount (US$ in Thousands)
US$ 330,300
Asset Carrying Amount as of December 31, 2018
$ 23,229,530
Maturity
March 2019
Asset Accumulated Amount of Fair Value Hedge Adjustments
$ (13,508)
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