Financial instruments designated as held-for-trading Interest rate swap Embedded derivative Foreign currency contracts The Corporation has foreign currency contracts to mitigate the currency risk for interest payments on the shareholder loan due from Värmevärden in  SEK and dividends from Bristol Water in pounds sterling. Capstone's options to sell foreign currencies as at December 31, 2013, are summarized as follows:  The Corporation has determined that its gas purchase contract contains embedded derivative features, which include mitigation options and electricity indexing features requiring separation and measurement at fair value.  The Corporation has interest rate swap contracts to effectively fix the interest cost on its long-term debt with variable rates, summarized as follows: The Corporation invests its cash and cash equivalents and restricted cash balances in financial instruments of highly rated financial institutions and government securities with original maturities of 90 days or less. Short-term deposits have original maturities of greater than 90 days. As at December 31, 2013, the carrying values of cash and cash equivalents, restricted cash and short-term deposits are considered to be  approximately at their fair value due to their short-term nature, which is consistent with the prior year. Derivative financial instruments and hedging instruments •  Amherstburg project debt swap has a notional amount of $86,680. The Corporation pays a fixed rate of 4.1925% in return for a floating rate equal to 1.275%. •  Bristol Water has a swap with a notional amount of £10,000 for a bank loan drawn in October 2008 by Bristol Water. The swap exchanges LIBOR rates on a six monthly basis for a fixed rate of 5.025% and expires December 7, 2017. The swap meets the requirement to be accounted for as a cash flow hedge as it was assessed to be highly effective as at December 31, 2013. Swedish Krona (SEK)  UK Pound Sterling (£) Expiry Notional Amount Conversion Rate Notional Amount Conversion Rate 2014 21,400 6.5165 £3,500 1.6230 2015 9,800 6.5165 £2,600 1.6230 2015 12,000 6.5165 £1,500 1.5500 2016 9,000 6.4000 £2,250 1.5500 2016 9,100 6.5165 2017 15,000 6.4000 2018 6,500 6.4000 82,800 £9,850 The Corporation has determined the fair value of derivative financial instruments as follows: Due to the lack of observable market quotes on the Corporation's embedded derivatives, their fair values, classified as Level 3, were derived using valuation models that rely on a combination of observable and unobservable inputs, including interest rates, forward gas prices and volatility, foreign exchange curves, credit spreads, estimates on gas volumes and sales, fixed and variable gas transportation costs and a forecasted Direct Customer  Rate (“DCR”) curve based on historical averages. Capstone's finance department, with the assistance of third-party experts, is responsible for performing the valuation of financial instruments,  including Level 3 fair values. The valuation processes and results are reviewed and approved each reporting period. These critical estimates are  discussed as part of the Audit Committee's quarterly review of the financial statements. 72 CAPSTONE INFRASTRUCTURE CORPORATION Interest rate swap • The fair value of the interest rate swap contracts fluctuates with changes in market interest rates. • A discounted cash flow valuation based on a forward interest rate curve was used to determine their fair value. Interest rate swap (Cash flow hedges) • The market price of comparable instruments at the statement of financial position date is used to determine the fair value of cash flow hedges at Bristol Water. Embedded derivative • The determination of the fair value of the Corporation's embedded derivatives requires the use of option pricing models involving significant judgment based on management's estimates and assumptions. Foreign currency contracts • The fair value of the foreign currency contracts fluctuates with changes in the relative currencies to the Canadian dollar. • A Black-Scholes model, based on the current spot price, discount rate, volatility in the underlying currency and time to  maturity, is used to determine fair value. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS