Hey mate, so the MTM process will result in (potentially) unrealised gains or losses that need to be accounted for. The process by which these gains or losses are recorded is dependent on whether the derivatives are classified as held for trading, FV through P&L etc etc.
Does that help at all? Sorry if I’ve misunderstood the question!
Will try.through a very crude example… Lets say u sold a share for delivery 6 months hence for USD 100. A month down you have to present p/l and Bal sheet. On the day of drawing your financial results, assume share price is 120. Notional loss is 20, so u have to account for.it.in ur p/l as loss of $ 20 and create a liability in Bal sheet of 20. In subsequent reporting period if share.moves further up, book loss and increase liability. If share comes.down, book profit and reduce the liability. This process of revaluing contracts to fair value increases p/l volatility. It can be reduced through use of hedge accounting but stringent criteria governs use of hedge accounting
My understanding is that only the effective portion of a cash flow hedge (i.e., the gain or loss only up to the amount being hedged) is included in OCI; the ineffective portion is reported on the income statement.