Bank of Montreal 2013 Annual Report Download - page 139

Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedging Relationships
The following table presents the impact of cash flow hedges on our financial results.
(Canadian $ in millions )
Contract type
Fair value change recorded in
other comprehensive income
Fair value change recorded in
non-interest revenue – other
Pre-tax gains/(losses) recorded in income
Reclassification of gains (losses) on
designated hedges from other comprehensive
income to net interest income
Amortization of
spot/forward differential on
foreign exchange contracts
to interest expense
2013
Interest rate (86) – 195 –
Foreign exchange 49 – – (25)
Total (37) – 195 (25)
2012
Interest rate (44) 3 177 –
Foreign exchange (27) – – (32)
Total (71) 3 177 (32)
2011
Interest rate 345 8 98 –
Foreign exchange 120 – – (66)
Total 465 8 98 (66)
Embedded Derivatives
From time to time, we purchase or issue financial instruments
containing embedded derivatives. The embedded derivative is separated
from the host contract and carried at fair value if the economic
characteristics of the derivative are not closely related to those of the
host contract, the terms of the embedded derivative are the same as
those of a stand-alone derivative, and the combined contract is not held
for trading or designated at fair value. To the extent that we cannot
reliably identify and measure the embedded derivative, the entire
contract is carried at fair value, with changes in fair value reflected in
income. Embedded derivatives in certain of our equity linked notes are
accounted for separately from the host instrument.
Contingent Features
Certain over-the-counter derivative instruments contain provisions that
link the amount of collateral we are required to post or payment
requirements to our credit ratings (as determined by the major credit
rating agencies). If our credit ratings were to be downgraded, certain
counterparties to these derivative instruments could demand immediate
and ongoing collateralization overnight on derivative liability positions
or request immediate payment. The aggregate fair value of all
derivative instruments with collateral posting requirements that were in
a liability position on October 31, 2013 is $4.6 billion, for which we have
posted collateral of $5.2 billion. If our credit rating had been
downgraded to A and A- on October 31, 2013 (per Standard & Poor’s
Ratings Services), we would have been required to post collateral or
meet payment demands of an additional $0.1 billion and $0.4 billion,
respectively.
Fair Value
Fair value represents point-in-time estimates that may change in
subsequent reporting periods due to market conditions or other factors.
Discussion of the fair value measurement of derivatives is included in
Note 29.
150 BMO Financial Group 196th Annual Report 2013