IFRS 9

Question 1

What are the three identifiers to recognise a derivative?

Answer 1

1). Existence of underlying asset

• A derivative will typically involve an underlying variable, such as interest rates, fx, commodities etc

2). Settlement mechanism

• Derivatives usually have a settlement mechanism that is different from a regular exchange of principal or interest. Usually involves a net settlement of physical delivery

3). Market price fluctuations impact

• The value of the derivative is sensitive to changes in the market prices of underlying asset