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## 25. Derivative Financial Instruments  | continued 

Fair value hedges consist of interest rate swaps and currency swaps. These instruments hedge risks arising from changes in asset/liability fair values due to interest rate and foreign exchange rate movements. 

Cash flow hedges consist of forward foreign exchange and commodity contracts and interest rate and currency swaps. These instruments hedge risks arising to future cash flows from movements in foreign exchange rates, commodity prices and interest rates. Cash flow hedges are expected to affect profit and loss over the period to maturity. 

Net investment hedges comprise cross-currency swaps and hedge changes in the value of net investments due to currency movements. 

The profit/(loss) arising on fair value, cash flow, net investment hedges and related hedged items reflected in the Consolidated Income Statement is shown below: 

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## Fair value hierarchy 

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: 

– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities 

– Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) 

– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) 

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During the reporting periods ending 31 December 2012 and 31 December 2011 there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. 

