4 key points regarding Fair value and Cash flow Hedges

• Fair value hedges apply to recognized assets and liabilities or firm commitments. The terms, prices, and/or rates for these items are fixed. Therefore, changes in the prices or rates affect the fair value of the recognized item or commitment.

• Cash flow hedges apply to existing assets or liabilities with variable future cash flows andto forecasted transactions. The prices or rates for these items are not fixed, and, therefore,future cash flows may vary due to changes in prices or rates.

• In a fair value hedge, both the derivative instrument and the hedged item are measured at fair value. Changes in the fair value of the respective items are recognized currently in earnings.

• In a cash flow hedge, the derivative instrument is measured at fair value with changes in value being recognized in other comprehensive income. The amounts in other comprehensive income are recognized in current earnings in the same period(s) as are the gains or losses on the hedged cash flow.