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29. DERIVATIVE FINANCIAL INSTRUMENTS
The Company and its consolidated subsidiaries use derivative financial instruments in the normal course of their business to manage the exposure to fluctuations in foreign exchange
rates and interest rates. The primary classes of derivatives used by the Company and its consolidated subsidiaries are foreign exchange forward contracts, currency options, currency
swaps and interest rate swaps. Almost all derivative transactions are used to hedge interest rates and foreign currency positions in connection with their business. Accordingly, market
risk in these derivatives is largely offset by opposite movements in the underlying positions. Management assesses derivative transactions and market risks surrounding these transac-
tions according to the Company’s policy regarding derivative transactions. Contracts of derivative financial instruments are executed by finance departments of the Company or
subsidiaries.
The Company’s and its consolidated subsidiaries’ trade payable that are denominated in foreign currencies which meet specific matching criteria and have been hedged by
foreign exchange forward contracts are translated at the foreign exchange rate stipulated in the contracts (special hedge accounting for foreign exchange forward contracts).
Interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential to be paid or received under
the swap agreements are accrued and included in interest expense or income (special hedge accounting short-cut method for interest rate swaps).
The counterparties to the derivative financial instruments of the Company and its consolidated subsidiaries are substantial and creditworthy multi-national commercial banks or
other financial institutions that are recognized market makers. Neither the risks of counterparty non-performance nor the economic consequences of counterparty non-performance
associated with these contracts are considered by the Company to be material.
The following table summarizes the underlying notional transaction amounts, book values and fair values for outstanding derivative financial instruments by risk category and
instrument type as of March 31, 2012 and 2011:
Derivatives for which the hedge accounting is not applied
(As of March 31, 2012) Millions of yen Thousands of U.S. dollars
Notional
amount Fair value
Unrealized
gain or (loss)
Notional
amount Fair value
Unrealized
gain or (loss)
Foreign exchange forward contracts ...............................................
To buy U.S. dollars....................................................................... ¥ 82 ¥ (0) ¥ (0) $ 1,025 $ — $ —
To buy other currencies ............................................................... 21,098 (494) (494) 263,725 (6,175) (6,175)
To sell U.S. dollars ....................................................................... 1,041 18 18 13,013 225 225
To sell other currencies................................................................ 3,191 (111) (111) 39,888 (1,388) (1,388)
Foreign exchange option contracts
Put option ................................................................................... 3,800 84 84 47,500 1,050 1,050
Foreign currency swap contracts
Receive British pounds/ pay Euro ................................................. 5,405 5 5 67,563 63 63
Receive other currencies/ pay other currencies ............................. 5,466 17 17 68,325 213 213
(As of March 31, 2011) Millions of yen
Notional
amount Fair value
Unrealized
gain or (loss)
Foreign exchange forward contracts
To buy other currencies ................................................................................................................................................... ¥ 22,605 ¥ 696 ¥ 696
To sell U.S. dollars ........................................................................................................................................................... 6,654 327 327
To sell other currencies.................................................................................................................................................... 3,943 (32) (32)
Foreign exchange option contracts
Put option ....................................................................................................................................................................... 3,699 63 63
Foreign currency swap contracts
Receive British pounds/ pay Euro ..................................................................................................................................... 4,039 (14) (14)
Receive other currencies/ pay other currencies ................................................................................................................. 5,729 8 8
The fair value of currency option contracts and currency swap contracts are estimated by obtaining quotes from financial institutions. The fair value of foreign exchange forward contracts is estimated based on market prices for contracts with
similar terms.
OLYMPUS 󱚈 Annual Report 2012 91