298 O N E R E P O R T 2 0 2 2 OVERVIEW BUSINESS OVERVIEW AND PERFORMANCE CORPORATE GOVERNANCE FINANCIAL INFORMATION SUSTAINABLE BUSINESS DEVELOPMENT During the years 2022 and 2021, there were no changes in the methods and the assumptions used to estimate the fair value of financial instruments and there were no transfers within the fair value hierarchy. 38. Financial instruments 38.1 Derivatives and hedge accounting The subsidiary is holding the following derivatives as at 31 December 2022 and 2021: Derivatives not designated as hedging instruments The Group uses foreign exchange forward contracts to manage some of its transaction exposures. The contracts are entered into for periods consistent with foreign currency exposure of the underlying transactions, generally 12 months. Derivatives designated as hedging instruments Cash flow hedges Foreign currency risk In 2021, the Group entered into foreign exchange forward contract with local financial institutions to hedge on foreign currency risk and interest rate risk relating to payment in foreign currency. Forecast transactions are highly probable and they comprise about 31% of the Group’s total expected lease liabilities in US dollars. Consolidated financial statements 2022 2021 Derivative assets Derivatives assets designated as hedging instruments Interest rate swap agreements 1 - Total derivative assets 1 - Derivative liabilities Derivatives liabilities designated as hedging instruments Interest rate swap agreements 3 50 Cross currency swap agreements - 42 Derivatives liabilities not designated as hedging instruments Foreign exchange forward contracts 73 - Total derivative liabilities 76 92 (Unit: Baht Million) Interest rate risk The Group entered into interest rate swap agreements to hedge against fluctuations in the floated interest rate from aircrafts’ leases and loan agreement. The Group hedged at fixed rates from 4.69% to 4.86% per annum (2021: 2.24% to 4.86% per annum) via cross currency swap agreements and interest rate swap agreements. There is an economic relationship between the hedged item and the hedging instrument as the terms of the interest rate swap match the terms of the fixed rate loan (i.e., notional amount, maturity, payment and reset dates). The Group has established a hedge ratio of 1:1 as the underlying risk of the interest rate swap is identical to the hedged risk component. To test the hedge effectiveness, the Group uses the hypothetical derivative method and compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks.
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