The Company enters into foreign currency forward and option contracts with financial institutions to protect against the exposure to changes in exchange rates of several foreign currencies that are associated with forecasted cash flows and existing assets and liabilities. The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.

F - 27

CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share data)

NOTE 9:- DERIVATIVE INSTRUMENTS (Cont.)

The fair value of derivative contracts in the consolidated balance sheets at December 31, 2020 and December 31, 2019 were as follows:

	Other accounts receivable and prepaid expenses		Other accounts payable and accrued expenses
	December 31, 2020
Derivatives designated as hedging instruments
Currency forward contracts	$	1,847	$	2
Derivatives not designated as hedging instruments
Currency forward and option contracts	$	90	$	279

Total derivatives	$	1,937	$	281

	Other accounts receivable and prepaid expenses		Other accounts payable and accrued expenses
	December 31, 2019
Derivatives designated as hedging instruments
Currency forward contracts	$	318	$	-
Derivatives not designated as hedging instruments
Currency forward and option contracts	$	55	$	112

Total derivatives	$	373	$	112

The notional amounts for derivatives contracts were as follows:

	December 31, 2019		December 31, 2020
Derivatives designated as hedging instruments
Currency forward contracts	$	29,621	$	35,089
Derivatives not designated as hedging instruments
Currency forward and option contracts	$	28,532	$	31,207

The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is up to 12 months.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains or losses from contracts that were not designated as hedging instruments are recognized in "financial expenses and others, net".

F - 28

CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share data)

NOTE 9:- DERIVATIVE INSTRUMENTS (Cont.)

The effect of derivative contracts on the consolidated statements of operations for the year ended December 31, 2019 and 2020 was as follows:

	Year ended December 31,
	2019			2020

Operating income (expenses)	$	895		$	225

Financial income (expenses)	$	(207	)	$	(894	)

The following table sets forth the Company’s net assets that were measured at fair value as of December 31, 2019 and December 31, 2020, by level within the fair value hierarchy:

		Fair value measurements using input type
	Fair value hierarchy	December 31, 2019		December 31, 2020

Derivatives instruments	Level 2	$	260	$	1,655

Total net assets		$	260	$	1,655