Freddie Mac 2004 Annual Report Download - page 82

Table 35 summarizes the notional balance and related fair value by product type at December 31, 2004
and 2003.
Table 35 Ì Total Derivative Portfolio
December 31,
2004 2003
Derivative Derivative
Notional or Notional or
Contractual Contractual
Amount(1) Fair Value(2) Amount(1) Fair Value(2)
(dollars in millions)
Interest-rate swaps:
Pay-Ñxed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 95,043 $(2,879) $ 179,751 $(3,821)
Receive-Ñxed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 83,602 2,394 107,417 1,992
Basis (Öoating to Öoating) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 94 1 424 2
Total interest-rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 178,739 (484) 287,592 (1,827)
Option-based:
Call swaptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 189,945 4,988 217,338 7,170
Put swaptionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25,175 267 123,611 2,096
Other option-based derivatives(3)(4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18,981 2 20,379 28
Total option-based ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 234,101 5,257 361,328 9,294
Futures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 129,110 (33) 130,798 181
Foreign-currency swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 56,850 10,303 46,512 8,400
Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 598,800 15,043 826,230 16,048
Prepayment management agreement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 113,692 Ì 152,548 Ì
Commitments(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,952 (9) 89,520 (230)
Credit derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,926 (2) 15,542 5
Swap guarantee derivatives(4)(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 408 (1) 31 Ì
Total(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $756,778 $15,031 $1,083,871 $15,823
(1) Notional or contractual amounts are used to calculate the periodic amounts to be received and paid and generally do not represent
actual amounts to be exchanged or directly reÖect our exposure to institutional credit risk. Notional or contractual amounts are not
recorded as assets or liabilities in our consolidated balance sheets.
(2) The fair value by derivative type presented on this table is shown prior to netting by counterparty. The fair value of derivatives
presented on the consolidated balance sheets, however, is netted by counterparty as permitted by GAAP, and is reported in the
Derivative assets, at fair value and Derivative liabilities, at fair value captions. The fair value for futures are directly derived from
quoted market prices. Fair values of other derivatives are derived primarily from valuation models with incorporation of market-based
inputs.
(3) Primarily represents written options.
(4) Subsequent to the issuance of our Information Statement dated September 24, 2004, we increased the December 31, 2003 notional
amounts of commitments and swap guarantee derivatives that are subject to the requirements of SFAS 133 and SFAS 149 and are
not in hedge accounting relationships by $200 million and $31 million, respectively. The net eÅect of these changes was an increase
to the notional amount of our total derivative portfolio at that date to $1,083,871 million from $1,083,640 million. Also, subsequent to
the issuance of our Information Statement Supplement dated March 31, 2005, we revised the December 31, 2004 notional amounts
of written options and swap guarantee derivatives that are not in hedge accounting relationships by ($134) million and $13 million,
respectively. The net eÅect of these changes was a decrease to the notional amount of our total derivative portfolio at that date to
$756,778 million from $756,899 million. The net eÅect of these changes on fair value was immaterial.
(5) Represents certain interest-rate swaps where we have guaranteed a third party's performance under the swap. Swap guarantees
entered into after June 30, 2003 are treated as derivatives in accordance with SFAS 149. See ""RISK MANAGEMENT Ì Interest-
Rate Risk and Other Market Risks Ì Use of Derivatives and Interest-Rate Risk Management Ì Types of Derivatives'' for more
information.
The balance of derivatives in a gain position (reported as Derivative assets, at fair value) decreased by
$0.9 billion, or 6 percent, to $15.3 billion as of December 31, 2004 from $16.2 billion as of December 31, 2003,
while the balance of derivatives in a loss position (reported as Derivative liabilities, at fair value) remained
relatively Öat at $0.2 billion and $0.4 billion as of December 31, 2004 and 2003, respectively. The carrying
value of our derivative assets and liabilities at each consolidated balance sheet date is equal to the fair value of
the derivatives that we held on those dates, which is aÅected by changes in market conditions such as the level
and expected volatility of interest rates. The composition of the derivatives we hold will change from period to
period as a result of derivative purchases, terminations prior to contractual maturity and expiration of the
derivative at its contractual maturity.
Freddie Mac
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