Bank of Montreal 1998 Annual Report Download - page 95

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Transactions are conducted with counterparties in various geo-
graphic locations and industries. Based upon the ultimate risk, the
replacement cost of contracts is recorded from customers located in:
1998 19 97
Canada $ 3,554 28% $ 2,251 33%
United States 4,349 34 1,703 25
Mexico 16 – 11 –
Other countries 4,913 38 2,930 42
To t a l $ 12,832 100% $ 6,895 100%
87
BANK OF MONTREAL GROUP OF COMPANIES
The replacement cost of contracts is recorded from customers in the following industries:
1998 19 97
Foreign Foreign
Interest rate exchange Commodity Equity Interest rate exchange Commodity Equity
contracts contracts contracts contracts contracts contracts contracts contracts
Financial institutions $ 3,778 85% $ 6,495 81% $ 90 24% $ 8 100%$ 1,875 84% $ 3,968 89% $ 41 23% $ 4 100%
Other 686 15 1,495 19 280 76 – – 367 16 500 11 140 77 – –
To t a l $ 4,464 100%$ 7,990 100%$ 370 100%$ 8 100%$ 2,242 100% $ 4,468 100% $ 181 100% $ 4 100%
Set out below are the maturities and weighted average interest rates paid and received on interest rate contracts:
Ter m t o m a t ur i t y 1998 1997
Total To t a l
Within 1 to 3 3 to 5 5 to 10 Over notional notional
1 year years years years 10 years amount amount
Interest Rate Contracts Rate Rate Rate Rate Rate
Fixed/Floating Swaps %%%%%
Canadian $ pay fixed $ 30,048 5.07 $ 14,688 5.65 $ 7,700 5.87 $ 3,866 6.66 $ 150 5.64 $ 56,452 $ 45,753
Canadian $ receive fixed 28,329 5.11 19,926 5.71 15,630 5.79 6,350 5.65 296 5.97 70,531 53,927
US $ pay fixed 20,180 6.12 21,400 6.11 10,905 6.34 7,393 6.72 506 6.58 60,384 34,933
US $ receive fixed 26,840 5.99 14,022 6.31 8,178 6.23 5,938 6.47 757 6.44 55,735 29,735
Basis swaps 1,038 na 3,134 na 1,127 na 92 na 309 na 5,700 2,729
Other swaps 23,192 na 17,333 na 6,161 na 7,835 na 289 na 54,810 20,550
Total interest rate swaps 129,627 90,503 49,701 31,474 2,307 303,612 187,627
Forward rate agreements,
futures and options 223,832 na 38,544 na 8,879 na 4,072 na 489 na 275,816 207,355
Total Interest Rate Contracts 353,459 na 129,047 na 58,580 na 35,546 na 2,796 na 579,428 394,982
Foreign Exchange Contracts
Cross-currency swaps 675 na 2,028 na 506 na 1,819 na 317 na 5,345 1,803
Cross-currency
interest rate swaps 5,923 na 8,148 na 6,786 na 6,682 na 1,059 na 28,598 13,403
Forward foreign
exchange contracts,
futures and options 351,154 na 9,653 na 1,979 na 403 na 77 na 363,266 296,591
Total Foreign
Exchange Contracts 357,752 na 19,829 na 9,271 na 8,904 na 1,453 na 397,209 311,797
Commodity Contracts
Swaps 4,768 na 2,316 na 299 na 228 na –na 7,611 3,200
Futures and options 6,997 na 1,464 na 37 na 2na –na 8,500 4,037
Total Commodity Contracts 11,765 na 3,780 na 336 na 230 na –na 16,111 7,237
Total Equity Contracts 936 na 67 na –na –na –na 1,003 886
Tot a l $ 723,912 na $ 152,723 na $ 68,187 na $ 44,680 na $ 4,249 na $ 993,751 $ 714,902
na = not applicable as weighted average rates are not meaningful.
US $ amounts are presented in Canadian $ equivalents.
Included in the notional amounts above is $18,076 as at October 31, 1998 and
$11,051 as at October 31, 1997 related to the Managed Futures Certificates of Deposit
Program. Risk exposures represented by the assets in this program are traded on
behalf of customers with all gains and losses accruing to them.
Rates represent the weighted average interest rates which we are contractually
committed to pay/receive until the swap matures. The floating side of substantially all
Canadian $ swaps is based on the one-month or three-month Canadian Bankers’
Acceptance Rate. For US $ swaps the floating side is generally based on the one-month,
three-month or six-month London Interbank Offered Rate.
Basis swaps are floating interest rate swaps where amounts paid and received are
based on different indices or pricing periods.
Other swaps are contracts where the fixed side is denominated in a source currency
other than Canadian $ or US $.
One technique that we use to reduce credit exposure is master net-
ting agreements with customers, which allows us to net amounts
due to/from a customer should the customer default on a contract.
The potential reduction in replacement cost under master netting
agreements was $4,715 as at October 31, 1998 and $2,425 as at
October 31, 1997.