The intrinsic value of foreign currency options is determined with reference to the relevant spot market exchange rate. The differential between the contracted strike rate and the discounted spot market exchange rate is defined as the time value. It is discounted where material. The changes in the forward element of the foreign currency forwards and the time value of the options that relate to hedged items are deferred in the hedging reserve. EFFECTS OF HEDGE ACCOUNTING ON THE FINANCIAL POSITION AND PERFORMANCE 2021 2020 £’m £’m Foreign currency forwards Carrying amount of (liability)/asset (5.2) 6.6 Notional amount 174.0 122.2 July 2021- July 2020- Maturity date May 2023 May 2022 Hedge ratio 1:1 1:1 Change in value of hedged item used to determine hedge effectiveness 17.7 (6.8) Change in the value of hedging instruments (17.7) 6.8 Weighted average hedged rate for the year (including forward points) £1:US$1.3493 £1:US$1.3014 FAIR VALUES The fair value of the Group’s financial assets and liabilities are equal to their carrying value. The fair value of foreign currency contracts are amounts required by the counterparties to cancel the contracts at the end of the period. FAIR VALUE HIERARCHY Financial instruments carried at fair value are required to be measured by reference to the following levels: • Level 1: quoted prices 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); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). All derivative financial instruments carried at fair value have been measured by a Level 2 valuation method, based on observable market data. FINANCIAL ASSETS/(LIABILITIES) The carrying value of all financial assets and financial liabilities was materially equal to their fair value. Financial Financial Derivatives assets at liabilities at used for amortised cost amortised cost hedging Total At 27 June 2020 £’m £’m £’m £’m Cash and cash equivalents 90.0 – – 90.0 Trade and other receivables 9.8 – – 9.8 Accrued income 0.1 – – 0.1 Derivative financial instruments – – 6.6 6.6 Total financial assets 99.9 – 6.6 106.5 Trade and other payables – (72.1) – (72.1) Accruals – (50.3) – (50.3) Bank borrowings – (44.6) – (44.6) Provisions – (3.8) – (3.8) Total financial liabilities – (170.8) – (170.8) Net financial assets/(liabilities) 99.9 (170.8) 6.6 (64.3) DUNELM GROUP PLC ANNUAL REPORT & ACCOUNTS 2021 209 FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OTHER INFORMATION