Page 185 - TSMC 2019 Annual Report

Hedged Items
Financial assets at FVTOCI December 31, 2018
Hedging Instruments
US treasury bonds interest rate futures contracts
Hedged Items
Financial assets at FVTOCI
The effect for the years ended December 31, 2019 and 2018 is detailed below:
Accumulated Amount of Fair Value Hedge Adjustments
$ (22,380)
Maturity
March 2019
Accumulated Amount of Fair Value Hedge Adjustments
$ (13,508)
Hedging Instruments/Hedged Items
Hedging Instruments
US treasury bonds interest rate futures contracts
Hedged Items
Financial assets at FVTOCI
Cash flow hedge
Increase
(Decrease) in Value Used for Calculating Hedge Ineffectiveness Years Ended December 31
Asset Carrying Amount
$ 7,364,727
Contract Amount (US$ in Thousands)
US$330,300
Asset Carrying Amount
$ 23,229,530
2019
$ (164,740) 177,831 $ 13,091
2018
11,460 (13,846) $ (2,386)
$
The Company entered into forward exchange contracts and foreign currency deposits to partially hedge foreign exchange rate risks associated with certain highly probable forecast transactions (capital expenditures). The hedge ratio is adjusted in response to the changes in the financial market and capped at 100%. The forward exchange contracts have maturities of 12 months or less.
On the basis of economic relationships, the Company expects that the value of forward exchange contracts and foreign currency deposits and the value of hedged transactions will change in opposite directions in response to movements in foreign exchange rates.
The main source of hedge ineffectiveness in these hedging relationships is driven by the effect of the counterparty’s own credit risk on the fair value of forward exchange contracts and foreign currency deposits. No other sources of ineffectiveness emerged from these hedging relationships. For the years ended December 31, 2019 and 2018, refer to Note 21(d) for gain or loss arising from changes in the fair value of hedging instruments and the amount transferred to initial carrying amount of hedged items.
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