For bank reporting under IFRS you may see it classify some of its financial assets under the fair value in the P&L category. What's this all about? Well, it's about financial assets held for trading. If financial assets have been purchased with the intention to sell them in the near term, then they are said to be held for trading. Financial assets held for trading are always said to fall within the fair value through the P&L category. But let's look at this in more detail. Firstly, we need to look at the business model. This is about how the bank intends to manage the financial asset, i.e., is it going to hang onto it, not actively manage it, collect the interest, and ultimately the principle? Well, let's assume that the answer to this first question is no. So put it in IFRS lingo, the way in which the asset is managed doesn't fall under the heading hold to collect or hold to collect and sell, i.e., there is no intention whatsoever of holding to collect in any way. This alone is strong enough evidence to tell the bank the financial asset must be held at fair value and any change in the fair value will directly hit the P&L. But if there was any doubt then we can proceed to another test. Secondly, let's look at the cash flows. If the cash flows aren't solely payments of principle and interest, then failing this test alone also means the financial asset must be held at fair value and any change in the fair value will directly hit the P&L. That's a bit confusing though. Can you think of an example where payments aren't solely principle and interest? A great example is a convertible bond. Imagine it pays a 2% coupon that can be converted into shares at any point between now and its maturity. The market rate for interest is 4%. So how come the convertible bond is paying only 2%? Well, it's because investors are attracted by the option to convert to equity. You could therefore say that the coupon rate is not wholly reflective of the credit risk. In fact, the cash flows are not solely payments of principle and interest. They are impacted by this embedded conversion option. So the financial asset has failed the cashflow characteristics test and therefore must be classified as fair value through the P&L.