1. Hedging instruments

(1) According to Article 5 of these Standards, derivatives can usually be used as hedging instruments. Derivatives include forward contracts, futures contracts, swaps and options, and instruments that have the characteristics of one or more of forward contracts, futures contracts, swaps and options. For example, in order to avoid the risk of falling prices of copper inventory, enterprises can do so by selling futures contracts for a certain amount of copper products. The futures contract for selling copper products is a hedging tool.

If a derivative instrument cannot effectively reduce the risk of the hedged item, it cannot be used as a hedging instrument. For example, if an interest rate cap or floor option or an option consisting of an issued option and a purchased option is essentially equivalent to the enterprise issuing an option (that is, the enterprise receives a net option premium), it cannot be designated as an option. Hedging instruments.

(2) According to the provisions of Article 6 of these Standards, for derivatives that meet the conditions of hedging instruments, the entirety or a certain proportion of them should generally be designated as hedging instruments when hedging begins. According to Article 7 of these Standards, an individual derivative instrument is generally designated to hedge a risk. Derivatives with multiple risks can also be designated to hedge more than one risk, provided that the hedged risks can be clearly identified, the effectiveness of the hedging can be demonstrated, and it can be ensured that the derivative is consistent with the different risks. There is a specific relationship between them. For example, a company whose accounting functional currency is RMB issued a 5-year US dollar floating-rate bond. In order to avoid the foreign exchange risk and interest rate risk of the financial liability, the company signed a cross-currency swap contract with a financial enterprise and designated it as a hedging instrument, and designated US dollar floating rate bonds as the hedged item. After executing this contract, the enterprise will receive floating-rate U.S. dollar interest from the financial enterprise on a regular basis to pay bond holders, and pay fixed-rate RMB interest to the financial enterprise. In this example, the company converted floating-rate U.S. dollar interest into fixed-rate RMB interest, thus avoiding the risk of changes in the U.S. dollar-RMB exchange rate and U.S. dollar interest rate changes.

2. According to the provisions of Article 9 of these Standards, the hedged items include inventory commodities, held-to-maturity investments, available-for-sale financial assets, loans, long-term borrowings, expected product sales, expected product purchases, and Projects such as net investment in overseas operations that expose the company to changes in fair value or cash flow risks can be designated as hedged projects.

According to Article 16 of these Standards, when hedging a portfolio of assets or liabilities with similar risk characteristics (i.e., hedged items), each individual asset or liability in the portfolio shall** *Both bear the hedging risk, and the change in the fair value of each individual asset or liability in the portfolio caused by the hedging risk should be expected to be basically proportional to the overall change in the fair value of the portfolio caused by the hedging risk. For example, when the fair value of the entire hedged portfolio changes by 10% due to the hedging risk, the change in the fair value of each individual financial asset or individual financial liability in the portfolio due to the hedging risk should usually be limited to 9% to 11%. within a smaller range.

3. Application of hedging accounting method According to Article 4 of these Standards, the hedging accounting method refers to the fair value of the hedging instrument and the hedged item in the same accounting period. The result of the offset of changes is included in the current profit and loss. For example, a company plans to conduct cash flow hedging for precious metal sales that are likely to occur in 6 months. In order to avoid the risk of falling prices of related precious metals, the company can sell the same amount of precious metal futures contracts now and designate them as hedging. futures instruments and designates expected sales of precious metals as the hedged item. On the balance sheet date (assuming that the expected sales of precious metals have not yet occurred), the fair value of the futures contract has increased by RMB 1 million, and the corresponding present value of the expected sales price of precious metals has decreased by RMB 1 million. Assuming that the above hedging meets the conditions for applying the hedging accounting method, the enterprise should include the changes in the fair value of the futures contract into the owners' equity (capital reserve), and then transfer it out to adjust the sales revenue when the expected sales transaction actually occurs.

4. Hedging Effectiveness Evaluation According to Article 17 of these Standards, enterprises shall continuously evaluate the hedging effectiveness

and ensure that the hedging relationship remains in place. The specified accounting period is highly valid. Common hedging effectiveness evaluation methods mainly include: (1) main terms comparison method; (2) ratio analysis method; (3) regression analysis method, etc.