Page 282 - TSMC 2019 Annual Report

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 19(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.
The following tables summarize the information relating to the hedges for foreign currency risk. December 31, 2019
Contract Amount (In Thousands)
NT$1,342,392/EUR40,000
Contract Amount (In Thousands)
Forward exchange contracts
The effect for the years ended December 31, 2019 and 2018 is detailed below:
Balance in Other Equity (Continuing Hedges)
$ (3,820 )
Balance in Other Equity (Continuing Hedges)
$ 23,601
Hedging Instruments
Forward exchange contracts December 31, 2018
Hedging Instruments
Maturity
January 2020
Maturity
Hedging Instruments/Hedged Items
Hedging Instruments
Forward exchange contracts Foreign currency deposits
Hedged Items
Forecast transaction (capital expenditures)
Increase (Decrease) in Value Used for Calculating Hedge Ineffectiveness
Years Ended December 31
NT$3,917,657/EUR112,000
February 2019 to April 2019
2019
$(109,592) -
$(109,592) $ 109,592
2018
$ 34,563 6,412
$ 40,975 $ (40,975)
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