Morgan Stanley 1999 Annual Report Download - page 80

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99 AR |page 78
The gross notional or contract amounts of these instruments are
indicative of the Company’s degree of use of derivatives for trading
purposes but do not represent the Company’s exposure to market or
credit risk. Credit risk arises from the failure of a counterparty to per-
form according to the terms of the contract. The Company’s exposure
to credit risk at any point in time is represented by the fair value of
the contracts reported as assets. These amounts are presented on a
net-by-counterparty basis when appropriate but are not reported net
of collateral, which the Company obtains with respect to certain of
these transactions to reduce its exposure to credit losses. The
Company monitors the creditworthiness of counterparties to these
transactions on an ongoing basis and requests additional collateral
when deemed necessary. The Company believes the ultimate settle-
ment of the transactions outstanding at November 30, 1999 will not
have a material effect on the Company’s financial condition.
FISCAL YEAR-END
GROSS NOTIONAL/CONTRACT AMOUNT(1) (2) FISCAL YEAR-END FAIR VALUES(3) AVERAGE FAIR VALUES(3) (4)
(dollars in billions at fiscal year-end) ASSETS LIABILITIES ASSETS LIABILITIES
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
Interest rate and currency swaps and options
(including caps, floors and swap options) and
$2,689 $1,719 other fixed income securities contracts $ 9.5 $10.1 $ 9.4 $10.4 $ 9.0 $ 9.5 $ 6.2 $ 8.6
Foreign exchange forward and futures contracts
405 903 and options 3.7 3.7 3.6 4.1 3.3 4.6 3.5 4.4
Equity security contracts (including equity swaps,
110 107 futures contracts, and warrants and options) 7.1 5.2 7.3 4.8 5.9 4.8 5.4 4.6
170 91 Commodity forwards, futures, options and swaps 2.4 2.2 2.9 1.9 2.3 2.0 2.6 1.7
Mortgage-backed securities forward contracts,
30 40 swaps and options 0.1 0.2 ——0.1 0.2 0.1 —
$3,404 $2,860 Total $22.8 $21.4 $23.2 $21.2 $20.6 $21.1 $17.8 $19.3
(1) The notional amounts of derivatives have been adjusted to reflect the effects of leverage, where applicable.
(2) Notional amounts include purchased and written options of $399 billion and $401 billion, respectively, at November 30, 1999, and $485 billion and $442 billion, respective-
ly, at November 30, 1998.
(3) These amounts represent carrying value (exclusive of collateral) at November 30, 1999 and 1998, respectively, and do not include receivables or payables related to exchange
traded futures contracts.
(4) Amounts are calculated using a monthly average.
counterparties on offsetting positions in situations where netting is
appropriate. Similarly, liabilities represent net amounts owed to
counterparties. These amounts will vary based on changes in the
fair values of underlying financial instruments and/or the volatil-
ity of such underlying instruments: