ABMB-Qtr report 311211(Website) - Alliance Bank Malaysia Berhad

ALLIANCE BANK MALAYSIA BERHAD
(88103-W)
(Incorporated in Malaysia)
A30 Derivative Financial Instruments (contd.)
Options
Options are contractual agreements under which the seller grants the purchaser the right, but not the
obligation, either to buy (a call option) or sell (a put option) at or by a set date during a set period, a specific
amount of an underlying asset at a predetermined price. The seller receives a premium from the purchaser
in consideration of risk. Options may be either exchange-traded or negotiated between the purchaser and
the seller in the over-the-counter market.
Related accounting policies
Derivative financial instruments are initially recognised at fair value, which is normally zero or negligible at
inception except for options and subsequently re-measured at their fair value. The fair value of options at
inception is normally equivalent to the premium received (for options written) or paid (for options purchased).
All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
Changes in the fair value are recognised in the statement of comprehensive income.
Interest income and expenses associated with interest rate swaps are recognised over the life of the swap
agreement as a component of interest income or interest expense.
34