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## Financial instruments (continued) 22 

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The amounts shown as the book value of derivative financial instruments represent accruals or deferred income arising from these financial instruments. The fair value of long term debt has been based on current market rates offered to Reed Elsevier for debt of the same remaining maturities. The fair values for interest rate swaps, interest rate options and forward rate agreements represent the replacement cost calculated using market rates of interest at 31 December 2003 and 2002. The fair values of all other items have been calculated by discounting expected future cash flows at market rates. 

## Hedges 

The unrecognised and deferred gains and losses on financial instruments used for hedging purposes as at 31 December 2003, and before taking into account gains and losses arising in the year and included in the profit and loss account, are derived as follows: 

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