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## ALGONQUIN POWER & UTILITIES CORP. 

Notes to the Consolidated Financial Statements December 31, 2012 and 2011 

 (in thousands of Canadian dollars except as noted and amounts per share) 

## 24. Financial instruments (continued) 

(b) Derivative instruments (continued) 

(iv) Other derivatives (continued) 

For derivatives that are not designated as cash flow hedges and for the ineffective portion of gains and losses on derivatives that are accounted for a hedges, the changes in the fair value are immediately recognized in earnings. The effects on the statement of operations of derivative financial instruments not designated as hedges consist of the following: 

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(c) Risk management 

In the normal course of business, the Company is exposed to financial risks that potentially impact its operating results. The Company employs risk management strategies with a view to mitigating these risks to the extent possible on a cost effective basis. Derivative financial instruments are used to manage certain exposures to fluctuations in exchange rates, interest rates and commodity prices. The Company does not enter into derivative financial agreements for speculative purposes. 

This note provides disclosures relating to the nature and extent of the Company's exposure to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and interest rate risk, and how the Company manages those risks. 

