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If you have a so called “off-market derivative” – that is a derivative, for example an interest rate swap that has a negative value. I’ve been told these should be separated in two – into a loan component and a derivative that is “at-the-money” (value is equal to nil).
Does this solution stem from IFRS 9 4.3.3? These derivatives are seen as a hybrid contract – that shall be separated? Please help me understand this…
Thanks
Just to be clear, I mean a derivative that is off-market (has negative value) at inception
Hi,
I’m no expert on interest rate swaps with negative values (what does that even mean?) and not fully acquainted with “off-market derivatives” so I doubt I’d be able to answer this one.
Sorry
Hi again!
It just means that the terms of the swap are different to market terms, so that for one of the parties it has a positive value and for the other a negative value. This is balanced in some way, for example through a lump sum payment between the parties at inception, so in essence it’s a swap with a financing component
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