21. Other financial assets and Other financial liabilities

These items consist of derivative financial instruments measured at fair value at the balance sheet date.

Specifically:

 ($ million)At December 31, 2014At December 31, 2013
Positive fair valueNegative fair valuePositive fair valueNegative fair value
Fair value hedges:        
Interest rate risk - Interest rate swaps 37 (1) 46 (3)
Total Fair value hedges 37 (1) 46 (3)
Cash flow hedges:        
Currency risks - Forward contracts, Currency swaps and Currency options 74 (177) 159 (41)
Interest rate risk - Interest rate swaps - (12) 3 (11)
Other derivatives 1 - - (1)
Total Cash flow hedges 75 (189) 162 (53)
Derivatives for trading 93 (45) 53 (38)
Other financial assets/(liabilities) 205 (235) 261 (94)

The fair value of derivative fi nancial instruments is calculated by using market parameters at the balance sheet date and using valuation techniques widely accepted in the fi nancial business environment. In particular:

  • the fair value of forward contracts and currency swaps is calculated by taking the prevailing exchange rate and interest rates in the two currencies at the balance sheet date; 
  • the fair value of currency options is calculated by using appropriate valuation techniques and market parameters at the balance sheet date (in particular exchange rates, interest rates and volatility rates); 
  • the fair value of interest rate swaps and forward rate agreements is calculated by using the discounted cash fl ow method; 
  • the fair value of derivatives hedging commodity price risk is calculated by using the discounted cash fl ow method, taking the market parameters at the balance sheet date (and in particular the future price of the underlying and interest rates).

All these valuation techniques take into consideration also the credit quality of counterparties that, at December 31, 2014, is not significant.

The overall decrease in Other fi nancial assets from $261 million at December 31, 2013 to $205 million at December 31, 2014, and the increase in Other fi nancial liabilities from $94 million at December 31, 2013 to $235 million at December 31, 2014 is mostly due to changes in exchange rates and interest rates during the year.

As this item consists principally of hedging instruments, the change in their value is offset by the change in the value of the hedged item.

Derivatives for trading consist mainly of derivatives (mostly currency based derivatives) acquired to hedge receivables and payables subject to currency risk and/or interest rate risk which are not formally designated as hedges at Group level.

At December 31, 2014, the notional amount of outstanding derivative fi nancial instruments is as follows:

($ million)At December 31, 2014At December 31, 2013
Currency risk 8,606 9,725
Interest rate risk 5,585 5,672
Interest rate and currency risk 34 -
Other derivative financial instruments 10 11
Total notional amount 14,235 15,408

At December 31, 2014 and 2013, the notional amount of Other derivative instruments consists of the notional amount of derivatives linked to commodity prices hedging specifi c exposures arising from supply agreements. Under these agreements there is a regular updating of the prices on the basis of trends in the quoted prices of the raw material.

The following table provides an analysis by due date of outstanding derivative fi nancial instruments at December 31, 2014 and 2013 based on their notional amounts:

  At December 31, 2014At December 31, 2013
due within one yeardue between one and five
years
due beyond five yearsTotaldue within one yeardue between one and five
years
due beyond five yearsTotal
Currency risk 8,421 185 - 8,606 9,414 311 - 9,725
Interest rate risk 1,184 4,065 336 5,585 1,331 3,856 485 5,672
Interest rate and currency risk 34 - - 34 - - - -
Other derivative financial instruments 10 - - 10 11 - - 11
Total notional amount 9,649 4,250 336 14,235 10,756 4,167 485 15,408

Cash flow hedges

The effects on profi t or loss mainly refer to the management of the currency risk and, to a lesser extent, to the hedges relating to the debt of the Group’s fi nancial companies and Group treasury.

The policy of the Group for managing currency risk normally requires that future cash fl ows from trading activities which will occur for accounting purposes within the following twelve months, and from orders acquired (or contracts in progress), whatever their due dates, be hedged. As a result, it is considered reasonable to suppose that the hedging effect arising from this and recognized in the cash fl ow hedge reserve will be recognized in profi t or loss, mainly during the following year.

In 2014 the Group reclassifi ed loss of $35 million (gains of $54 million in 2013) stated net of the tax effect, to the following profi t or loss items; these had previously been recognized directly in Other comprehensive income:

($ million)20142013
Currency risk:    
Increase/(decrease) in Net revenues 14 15
Decrease/(increase) in Cost of sales (7) 17
Financial income/(expenses) (30) 49
Interest rate risk:    
Decrease/(increase) in Cost of sales (8) (10)
Financial income/(expenses) (3) (5)
Taxes  income/(expenses) (1) (12)
Total recognized in profit or loss (35) 54

The ineffectiveness of cash flow hedges was not material in 2014 or 2013.

The total economic effect of hedges which subsequently turned out to be in excess of the future fl ows being hedged (overhedges) amounted to $1 million in 2014 and $12 million in 2013.

Fair value hedges

The gains and losses arising from the measurement of interest rate and currency derivatives (mostly for managing currency risk) and interest rate derivatives (for managing the interest rate risk) recognized in accordance with fair value hedge accounting and the gains and losses arising from the respective hedged items are set out in the following table:

($ million)20142013
Interest rate risk:  
Net gains/(losses) on qualifying hedges 35 42
Fair value changes in hedged items (34) (40)
Net gains/(losses) 1 2

The ineffective portion of transactions treated as fair value hedges amounted to $1 million in 2014 ($2 million in 2013).