Note 37  Derivative financial instruments  Objectives of holding and issuing derivative financial  instruments  173  – interest rate swaps used to hedge against changes in the  fair value of fixed rate assets and liabilities as a result of  movements in benchmark interest rates; and  – foreign exchange forward contracts used to hedge against  changes in the fair value of foreign denominated equity  instruments as a result of movements in market foreign  exchange rates. As at 31 March 2014, the fair value of outstanding derivatives  held by the Consolidated Entity and designated as fair value  hedges was $211 million positive value (2013: $293 million  positive value).  Options:  Option contracts provide the holder the right to buy or  sell financial instruments or commodities at a fixed price over an  agreed period or on a fixed date. The contract does not oblige  the holder to buy or sell, however the writer must perform if the  holder exercises the rights pertaining to the option.  Swaps:  Swap transactions provide for two parties to swap a  series of cash flows in relation to an underlying principal  amount, usually to exchange a fixed interest rate for a floating  interest rate. Cross–currency swaps provide a tool for two  parties to manage risk arising from movements in exchange  rates.  Forwards and forward rate agreements:  Forward contracts,  which resemble futures contracts, are an agreement between  two parties that a financial instrument or commodity will be  traded at a fixed price and fixed date in the future. A forward  rate agreement provides for two parties to exchange interest  rate differentials based on an underlying principal amount at a  fixed date in the future.  Fair value hedges:  The Consolidated Entity’s fair value hedges  consist of:  During the year the Consolidated Entity recognised $0.6 million  of gains (2013: $nil) in the income statement due to hedge  ineffectiveness on cash flow hedges.  At 31 March 2014, the fair value of outstanding derivatives held  by the Consolidated Entity and designated as cash flow hedges  was $58 million negative value (2013: $134 million negative  value).  Cash flow hedges:  The Consolidated Entity is exposed to  volatility in future interest cash flows arising from floating rate  issued debt used to fund fixed rate asset positions. The  aggregate principal balances and interest cash flows across  these portfolios form the basis for identifying the non–trading  interest rate risk of the Consolidated Entity, which is hedged  with interest rate swaps and cross currency swaps.  Futures:  Futures contracts provide the holder with the  obligation to buy a specified financial instrument or commodity  at a fixed price and fixed date in the future. Contracts may be  closed early via cash settlement. Futures contracts are  exchange traded.  The types of derivatives which the Consolidated Entity trades  and uses for hedging purposes are detailed below:  A proportion of the Consolidated Entity’s borrowings amounting  to $5,449 million (2013: $3,355 million) is designated as a  hedge of its net investment in foreign operations. The foreign  exchange loss of $223 million (2013: $24 million gains) on  translation of the foreign currency borrowing to Australian  Dollars at the end of the reporting period is recognised in other  comprehensive income.  The Consolidated Entity also uses derivatives to hedge banking  operations and for asset/liability management. Certain derivative  transactions may qualify as cash flow, fair value or net  investment in foreign operations hedges, if they meet the  appropriate strict hedge criteria outlined in note 1(xi)–Summary  of significant accounting policies:  The Consolidated Entity is an active price maker in derivatives  on interest rates, foreign exchange, commodities and equities.  Its objective is to earn profits from the price making spread and  from managing the residual exposures on hedged positions.  Proprietary position taking is a small part of the Consolidated  Entity’s trading activities. Risks on derivatives are managed  together with all other trading positions in the same market. All  trading positions, including derivatives, are marked to fair value  daily.  At 31 March 2014, the fair value of outstanding derivatives held  by the Consolidated Entity and designated as net investment in  foreign operations hedges was $182 million negative value  (2013: $55 million positive value). During the year the  Consolidated Entity recognised $nil (2013: $1 million gains) in  the income statement due to hedge ineffectiveness on net  investment hedges.  Net investment in foreign operations hedges:  The  Consolidated Entity has designated derivatives and borrowings  as hedges of its net investment for foreign exchange risk arising  from its non–core foreign operations. During the year fair value losses on the hedging instruments of  $82 million have been recognised (2013: $102 million losses),  offset by $86 million (2013: $89 million gains) of gains on the  hedged item. 