Risk management (hedging) instruments and off-balance sheet risks. Clariant uses forward foreign exchange rate and option contracts, currency options as well as other financial instruments to hedge the Group’s risk exposure to volatility in interest rates, currencies and prices and to manage the return on cash and cash equivalents. Risk exposures from existing assets and liabilities as well as anticipated transactions are managed centrally.

Interest rate management. It is the Group’s policy to manage the costs of interest using fixed and variable rate debt and interest-related derivatives.

Foreign exchange management. To manage the exposure to the fluctuations in foreign currency exchange rates, the Group follows a strategy of hedging both balance sheet and revenue risk, partially through the use of forward contracts and currency swaps in various currencies. In order to contain costs, the Group does not hedge the entire exposure.

The following tables show the contract or underlying principal amounts and the respective fair value of derivative financial instruments by type at year-end.

The contract or underlying principal amounts indicate the volume of business outstanding at the balance sheet date and do not represent the amount at risk.

The fair value of these derivative financial instruments is recorded in Other current assets in the balance sheet in the case of a positive value or as Current financial debts in the case of a negative value and if the instruments expire within the next twelve months.

If the remaining lifetime exceeds twelve months, the value is recorded in Financial assets in case it is positive and in Non-current financial debts in case it is negative.

In 2012, Clariant issued a bond in the amount of EUR 500 million (see note 17), which was designated as a hedge of a net investment in some of Clariant’s European subsidiaries in that same year. In the course of 2016 the whole bond was de-designated. The unrealized foreign exchange rate loss resulting from the translation of the bond into Swiss francs as per the de-designation date amounted to CHF 3 million (2015: CHF 60 million loss) and remains frozen in the cumulative translation difference in shareholders’ equity.

In 2015, Clariant issued four certificates of indebtedness amounting to EUR 300 million (see note 17). They were designated as a hedge of a net investment in some of Clariant’s European subsidiaries. The unrealized foreign exchange rate gain resulting from the translation of the new certificates of indebtedness into Swiss francs amounted to CHF 2 million for 2016 (2015: CHF 15 million loss) and is recorded in the cumulative translation difference in shareholders’ equity.

In 2016, Clariant issued seven more certificates of indebtedness amounting to EUR 395 million and two certificates of indebtedness amounting to USD 277 million (see note 17). These certificates were also designated as a hedge of a net investment in some of Clariant’s European and US-American subsidiaries. The unrealized foreign exchange rate result calculated from the translation of the new certificates of indebtedness into Swiss francs amounted to a gain of CHF 7 million for the EUR positions and to a loss of CHF 12 million for the USD positions and is recorded in the cumulative translation difference in shareholders’ equity.

Clariant is hedging the interest rate risk resulting from the certificates of indebtedness in the amount of USD 166 million issued at a variable interest rate. For this purpose interest rate swaps amounting to USD 166 million have been established in 2016. Their clean price amounted to a positive CHF 5 million for 2016. They are accounted for as a cash flow hedge and as a consequence the result was recorded in other comprehensive income.