The Group measures derivatives at fair value using valuation models for financial instruments based on publicly available exchange rates, interest rates, discount curves in particular currencies (applicable also for commodities whose prices are denominated in these currencies) obtained from active markets. The fair value of derivative instruments is determined based on discounted future cash flows related from concluded transactions, calculated on the basis of the difference between the forward price and the transaction price. Forward exchange rates are not modelled as a separate risk factor, but are derived from the spot rate and the corresponding forward interest rate for the foreign currency in relation to PLN.
In the category of financial assets and liabilities measured at fair value through profit or loss, the Group recognises financial instruments related to trade in CO2 emission allowances – currency and commodity forwards, coal purchase and sales contracts, and commodity SWAPs (Level 2).
Additionally, the Group presents the CCIRS derivative hedging instrument for foreign exchange and interest rate and the IRS transactions hedging replacing a floating rate in PLN with a fixed rate in PLN (Level 2).
Derivatives are presented in note 25.1.2 to these financial statements. During the current and comparative reporting periods, there were no transfers of financial instruments between level 1 and level 2 of the fair value hierarchy.
The terms and conditions of the particular derivatives and other receivables measured at fair value through profit or loss are set out below.