HSBC 2008 Annual Report Download - page 404

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 18 and 19
402
Fair value of derivatives designated as cash flow hedges
At 31 December 2008 At 31 December 2007
Fair value Fair value
Assets Liabilities Assets Liabilities
US$m US$m US$m US$m
Foreign exchange .......................................................... 1,745 816 3,327 306
Interest rate ................................................................... 3,907 3,178 1,588 1,675
5,652 3,994 4,915 1,981
The schedule of forecast principal balances on which interest cash flows are expected to arise as at 31 December
2008 is as follows:
3 months
or less
More than 3
months but less
than 1 year
5 years or less
but more than
1 year
More than
5 years
US$m US$m US$m US$m
At 31 December 2008
Assets ............................................................................ 99,426 71,491 52,988 2,081
Liabilities ...................................................................... (83,019) (77,656) (62,633) (7,817)
Net cash inflows/(outflows) exposure .......................... 16,407 (6,165) (9,645) (5,736)
At 31 December 2007
Assets ............................................................................ 90,575 78,215 36,952 227
Liabilities ...................................................................... (89,891) (77,389) (68,189) (5,955)
Net cash inflows/(outflows) exposure .......................... 684 826 (31,237) (5,728)
This table reflects the interest rate repricing profile of the underlying hedged items.
The gains and losses on ineffective portions of such derivatives are recognised immediately in ‘Net trading income’.
During the year to 31 December 2008, a loss of US$40 million (2007: loss of US$77 million; 2006: loss of
US$122 million) was recognised due to hedge ineffectiveness.
Hedges of net investments in foreign operations
HSBC’s consolidated balance sheet is affected by exchange differences between the US dollar and all the non-US
dollar functional currencies of subsidiaries. HSBC hedges structural foreign exchange exposures only in limited
circumstances. Hedging is undertaken using forward foreign exchange contracts which are accounted for as hedges of
a net investment in a foreign operation, or by financing with borrowings in the same currencies as the functional
currencies involved.
At 31 December 2008, the fair values of outstanding financial instruments designated as hedges of net investments
in foreign operations were liabilities of US$52 million (2007: US$450 million) and notional contract values of
US$161 million (2007: US$1,204 million).
The ineffectiveness recognised in ‘Net trading income’ in the year ended 31 December 2008 that arose from hedges
in foreign operations was nil (2007 and 2006: nil).