Capital One 2008 Annual Report Download - page 155

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137
The following table provides the Notional Value and Fair Values of the Companys derivative instruments, aggregated by category, as
of December 31, 2008 and December 31, 2007.
December 31, 2008
December 31, 2007
Notional
Amount
FV Positive
FV Negative
Notional
Amount
FV Positive
FV Negative
Fair Value Foreign Exchange Hedges.......$  $  $ 
$ 59,664 $ 976 $ 
Fair Value Interest Rate Hedges ............... 6,760,477 608,162 (10,201) 3,145,750
105,303 (17,407)
Cash Flow Foreign Exchange Hedges ...... 810,973 29,065 (8,679) 926,806
19,369 (6,602)
Cash Flow Interest Rate Hedges ............... 6,430,065 (225,459) 9,064,277
2,208 (148,445)
Net Investment in Foreign Operations ...... 48,238 10,889
66,097
604
Non-Trading Interest Rate Derivatives ..... 18,345,040 879,100 (784,372) 22,922,450
382,632 (330,787)
Non-Trading TBA Forwards..................... 850,000 8,020 (939)
Trading Interest Rate Derivatives(1) ........... 7,874,072 301,581 (292,021) 3,291,941 52,180 (46,740)
Totals ........................................................$ 41,118,865 $ 1,836,817 $ (1,321,671) $ 39,476,955 $ 563,272 $ (549,981)
(1) The Companys trading derivatives relate to customer-oriented derivative financial instruments.
Fair Value Hedges
The Company has entered into forward exchange contracts to hedge foreign currency denominated investments against fluctuations in
exchange rates. The purpose of the Companys foreign currency hedging activities is to protect the Company from the risk of adverse
effects from movements in exchange rates.
The Company has also entered into interest rate swap agreements that modify the Companys exposure to interest rate risk by
effectively converting a portion of the Companys senior notes, public fund certificates of deposit, and U.S. Agency investments from
fixed rates to variable rates over the next nine years. The agreements involve the receipt of fixed rate amounts in exchange for floating
rate interest payments over the life of the agreement without an exchange of underlying principal amounts.
Adjustments related to the ineffective portion of the fair value hedging instruments are recorded in interest income, interest expense or
non-interest income depending on the hedged item. For the years ended December 31, 2008 and 2007, net gains or losses related to the
ineffective portion of the Companys fair value hedging instruments were not material.
Cash Flow Hedges
The Company has entered into interest rate swap agreements that effectively modify the Companys exposure to interest rate risk by
converting floating rate debt to a fixed rate over the next five years. The agreements involve the receipt of floating rate amounts in
exchange for fixed rate interest payments over the life of the agreement without an exchange of underlying principal amounts.
The Company has entered into forward exchange contracts to reduce the Companys sensitivity to foreign currency exchange rate
changes on its foreign currency denominated loans. The forward rate agreements allow the Company to lock-in functional currency
equivalent cash flows associated with the foreign currency denominated loans.
Any unrealized gains or losses related to cash flow hedging instruments are reclassified from other comprehensive income (loss) into
earnings in the same period or periods during which the hedged forecasted transaction affects earnings and are recorded in interest
income, interest expense or non-interest income depending on the hedged item.
Adjustments related to the ineffective portion of the cash flow hedging instruments are recorded in interest income, interest expense or
non-interest income depending on the hedged item. For the years ended December 31, 2008 and 2007, net gains or losses related to the
ineffective portion of the Companys fair value hedging instruments were not material.
At December 31, 2008, the Company expects to reclassify $12.9 million of net gains, after tax, on derivative instruments from
cumulative other comprehensive income to earnings during the next 12 months as terminated swaps are amortized and as interest
payments and receipts on derivative instruments occur.