Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re‑measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Corporation designates certain derivatives as either:
(a) hedges of the fair value of recognized assets and liabilities or a firm commitment (fair value hedge); (b) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction
(cash flow hedge); or (c) hedges of a net investment in a foreign operation (net investment hedge).
The Corporation documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Corporation also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.