annual report 2004

A NNUAL R EPORT 2004PUBLIC POWER CORPORATION S.A.Notes to the consolidated financial statementsDecember 31, 2004(All amounts in thousands of Euro)risk is represented by the carrying amount of each asset, includingderivative financial instruments, in the balance sheet. With respectto derivative instruments, the Group monitors its positions, thecredit ratings of counter parties and the level of contracts it entersinto with any counter party. The counter parties to these contractsare major financial institutions. The Group has a policy of enteringinto contracts with parties that are well qualified and, given thehigh level of credit quality of its derivative counter parties, theGroup does not believe it is necessary to enter into collateralarrangements.(iii) Interest Rate and Foreign Currency Risk: With respect to its long-termdebt, the management of the Group closely monitors thefluctuations in foreign currency exchange and in interest rates andevaluates the need to enter into any financial instruments to mitigatethose risks, on an ongoing basis. In this respect, the Group entersinto interest rate and currency swap contracts to reduce the exposureto interest rate and currency fluctuations. Interest rate swaps aremeasured at fair value and recognised as assets or liabilities in theaccompanying financial statements. Changes in the fair value ofderivatives that are designated and qualify as cash flow hedges andthat are highly effective are recognised in equity. Where a hedgedforecasted transaction or firm commitment results in the recognitionof an asset or of a liability, the gains and losses previously deferred inequity are transferred from equity and included in the initialmeasurement of the cost of the asset or liability. Otherwise, amountsdeferred in equity are transferred to the income statement andclassified as revenue or expense in the same periods during which thehedged firm commitment or forecasted transaction affects the( 94 ) C HAPTER 6A PPENDICES