Financial Instrument Analysis

Running head: FINANCIAL INSTRUMENT ANALYSIS
Financial Instrument Analysis
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FINANCIAL INSTRUMENT ANALYSIS2
Table of Contents
Answer to Question A................................................................................................................3
Answer to Question B................................................................................................................3
Appendix....................................................................................................................................5
Reference list..............................................................................................................................8

FINANCIAL INSTRUMENT ANALYSIS3
Answer to Question A
Woolworths uses a variety of financial instruments in its business. The maturity of its
loan was due in 2020. It involves short term loans of money market and bank loans which are
unsecured and constitute the current borrowings. It also includes non-current borrowings like
finance leases and has borrowing cost that is unamortized (Ramirez 2015). It has cross
currency swaps that include syndicated bank loan. The improvement of the stock loss helped
to improve the gross profit of the company. The company made higher investments and
employed more funds. The hedging policy does not apply to the individuals. The differences
in foreign exchanges were used to hedge the risks. It has a hedging reserve which comprises
the accumulated net change in the cash flow instrument of hedging of the incomplete
transactions. The hedging instruments have also been used to hedge the exposures of foreign
exchange rate and interest rates. The outstanding forward exchange contracts have hedged
average exchange rates (Conlon, Cotter and Gençay 2016). The interest rate swaps are used
to hedge the weighted average interest rate. The company also maintains a cash flow hedge
reserve which includes interest rate swaps, foreign exchange options and contracts as well as
cross currency interest rate swaps (Fauceglia, Shingal and Wermelinger 2014). The part of
gain or loss that is effective on the financial instrument gets recognized and accumulated
separately in the hedge reserve included with equity. The ineffective section gets designated
and recognized in the consolidated Profit and Loss statement immediately. The profit or loss
that has been removed from the equity relating to the interest rate is recognized under
financing costs.
Answer to Question B
The company also engages itself in Off Balance Sheet instruments. It is committed
towards its operating lease agreements which are non-cancellable and payable in future. It has