INTL FCStone 2005 Annual Report Download - page 49

INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
September 30, 2005 and 2004
all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The
Company is subject to concentration of credit risk because a substantial portion of the Company’s cash and cash
equivalents (approximately $9,882,000 as of September 30, 2005) are maintained at the Company’s clearing
organization.
(d) Foreign Currency
The value of a foreign currency, including a foreign currency sold, not yet purchased, is converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at the close of business as of September 30, 2005 and
2004. For foreign currency transactions completed during the fiscal year, the Company utilizes the foreign
exchange rate in effect at the time of the transaction.
(e) Financial Instruments and Investments
“Financial instruments owned, at fair value” and “Financial instruments sold, not yet purchased, at fair
value” consist of financial instruments carried at fair value or amounts that approximate fair value, with related
unrealized gains or losses recognized in the Company’s results of operations. The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.
Cash trading instruments — Fair values of cash trading instruments are generally obtained from quoted
market prices in active markets, broker or dealer price quotations, or alternative pricing sources with reasonable
levels of transparency. The types of instruments valued in this manner include common stock, American
Depositary Receipts, sovereign government, provincial and corporate debt obligations and physical commodities.
The value of a foreign security is determined in the functional currency of the principal exchange on which the
security is traded, which value is then converted into its U.S. dollar equivalent at the foreign exchange rate in
effect following the close of such exchange. Certain cash trading instruments trade infrequently and, therefore,
have little price transparency. Such instruments may include commercial paper and similar debt instruments. The
Company values these instruments by reference to the interest rate spread sought on the same or equivalent
instruments by other brokers or dealers active in those markets. Cash trading instruments owned are marked to
bid prices and instruments sold but not yet purchased are marked to offer prices.
Derivative contracts — Derivative contracts consist of exchange-traded and over-the-counter (OTC)
derivatives. Fair values of exchange-traded derivatives are generally determined from quoted market prices. OTC
derivatives are valued using valuation models. The valuation models used to derive the fair values of OTC
derivatives require inputs including contractual terms, market prices, yield curves and measurements of volatility.
The Company uses similar models to value similar instruments. Where possible, the Company verifies the values
produced by pricing models by comparing them to market transactions. Inputs may involve judgment where
market prices are not readily available.
Investments — Financial instruments include the Company’s investment in a limited liability partnership
(the “Partnership”) which is engaged in pharmaceutical distribution. The Company holds a 0.23% interest in the
Partnership. The Company’s interest at September 30, 2005 has been recorded at fair value, determined by
management, of $36,662. Pricing information is not publicly available so management has utilized financial
statements and other financial information from the Partnership which reflects the value of each partner’s
interest. The Company has adjusted this value to reflect estimated gains or losses since the date of the
Partnership’s financial information. The Company holds its interest in the Partnership for investment purposes
and not for sale to the Company’s customers.
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