Page 191 - TSMC 2020 Annual Report

10. HEDGINGFINANCIALINSTRUMENTS
Financial assets- current
Fair value hedges Interestratefuturescontracts
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, 2020
$ 47 - $ 47
$ 1,169 - $ 1,169
December 31, 2019
$ 22,380 3,504 $ 25,884
$ - 1,798 $ 1,798
The Company entered into interest rate futures contracts, which are used to partially hedge against the fair value changes caused by interest rate fluctuation in the Company’s fixed income investments. 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 futures contracts. No other sources of ineffectiveness emerged from these hedging relationships during the hedging period. 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. December 31, 2020
Hedging Instruments
Interest rate futures contracts - US Treasury bonds
Hedged Items
Financial assets at FVTOCI
Contract Amount (US$ in Thousands)
US$88,700
Asset Carrying Amount
$ 6,198,683
Maturity
March 2021
Accumulated Amount of Fair Value Hedge Adjustments
$ 1,122
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