Derivatives & Hedging are financial instruments that are used to reduce the exposure to various risks, such as interest rate risk, currency risk, or commodity price risk. Derivatives & Hedging are reported on the balance sheet at fair value, which is the amount that would be received or paid to settle the contract as of the reporting date. Depending on the type and purpose of the derivative, changes in fair value may be recognized in earnings or other comprehensive income. For example, a company that has a variable-rate debt may use an interest rate swap to hedge against the risk of rising interest rates. The swap would be reported as a derivative asset or liability on the balance sheet, and changes in its fair value would be offset by changes in the fair value of the debt in earnings if the hedge qualifies for fair value hedge accounting.