Company: BCS
Filing Date: 2025-02-13
Form Type: 20-F
Source: 0000312069-25-000114
Chunk: 563

Company: BARCLAYS PLC
Filing Date: 2025-02-13
Form: 20-F
Chunk 563
---
 arises when the functional currency of subsidiaries are different from the parent ▪ Contractually-linked inflation risk – arises from financial instruments within contractually specified inflation risk. The Group does not hedge inflation risk that arises from other activities In order to hedge these risks, the Group uses the following hedging instruments: ▪ Interest rate derivatives to swap interest rate exposures into either fixed or variable rates ▪ Currency derivatives to swap foreign currency exposures into the entity’s functional currency, and net investment exposure to local currency ▪ Inflation derivatives to swap inflation exposure into either fixed or variable interest rates In some cases, certain items which are economically hedged may be ineligible hedged items for the purposes of IAS 39 , such as core deposits and equity. In these instances, a proxy hedging solution can be utilised whereby portfolios of floating rate assets are designated as eligible hedged items in cash flow hedges In some hedging relationships, the Group designates risk components of hedged items as follows: ▪ Benchmark interest rate risk as a component of interest rate risk, such as the Risk Free Rate (RFR) component ▪ Inflation risk as a contractually specified component of a debt instrument ▪ Exchange rate risk for foreign currency financial assets or financial liabilities ▪ Components of cash flows of hedged items, for example certain interest payments for part of the life of an instrument Using the benchmark interest rate risk results in other risks, such as credit risk and liquidity risk, being excluded from the hedge accounting relationship. In respect of many of the Group’s hedge accounting relationships, the hedged item and hedging instrument change frequently due to the dynamic nature of the risk management and hedge accounting strategy. The Group applies hedge accounting to dynamic scenarios, predominantly in relation to interest rate risk, with a combination of hedged items in order for its financial statements to reflect as closely as possible the economic risk management undertaken. In some cases, if the hedge accounting objective changes, the relevant hedge accounting relationship is de-designated and is replaced with a different hedge accounting relationship. Changes in the GBP value of net investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in CET 1 capital. The Group mitigates this by matching the CET 1 capital movements to the revaluation of the foreign currency RWA exposures. Net investment hedges are designated where necessary to reduce the exposure to movement in a particular exchange rate to within limits mandated by Risk. As far as possible, existing external currency liabilities are designated as the hedging instruments. The hedging instruments