Morgan Stanley 2010 Annual Report Download - page 200

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net Investment Hedges. The Company may utilize forward foreign exchange contracts and non-U.S. dollar-
denominated debt to manage the currency exposure relating to its net investments in non-U.S. dollar functional
currency operations. No hedge ineffectiveness is recognized in earnings since the notional amounts of the
hedging instruments equal the portion of the investments being hedged, and, where forward contracts are used,
the currencies being exchanged are the functional currencies of the parent and investee; where debt instruments
are used as hedges, they are denominated in the functional currency of the investee. The gain or loss from
revaluing hedges of net investments in foreign operations at the spot rate is deferred and reported within
Accumulated other comprehensive income (loss) in Equity, net of tax effects. The forward points on the hedging
instruments are recorded in Interest income.
The following tables summarize the fair value of derivative instruments designated as accounting hedges and the
fair value of derivative instruments not designated as accounting hedges by type of derivative contract on a gross
basis. Fair values of derivative contracts in an asset position are included in Financial instruments owned—
Derivative and other contracts. Fair values of derivative contracts in a liability position are reflected in Financial
instruments sold, not yet purchased—Derivative and other contracts.
Assets at
December 31, 2010
Liabilities at
December 31, 2010
Fair Value Notional Fair Value Notional
(dollars in millions)
Derivatives designated as accounting hedges:
Interest rate contracts ............................ $ 5,250 $ 68,212 $ 177 $ 7,989
Foreign exchange contracts ........................ 64 5,119 420 14,408
Total derivatives designated as accounting
hedges .................................. 5,314 73,331 597 22,397
Derivatives not designated as accounting hedges(1):
Interest rate contracts ............................ 615,717 16,305,214 595,626 16,267,730
Credit contracts ................................. 110,134 2,398,676 95,626 2,239,211
Foreign exchange contracts ........................ 61,924 1,418,488 64,268 1,431,651
Equity contracts ................................ 39,846 571,767 46,160 568,399
Commodity contracts ............................ 64,152 420,534 65,728 414,535
Other ......................................... 243 6,635 1,568 16,910
Total derivatives not designated as accounting
hedges .................................. 892,016 21,121,314 868,976 20,938,436
Total derivatives .................................... $897,330 $21,194,645 $ 869,573 $20,960,833
Cash collateral netting ................................ (61,856) — (37,589) —
Counterparty netting ................................. (784,182) — (784,182) —
Total derivatives ................................ $ 51,292 $21,194,645 $ 47,802 $20,960,833
(1) Notional amounts include net notionals related to long and short futures contracts of $71 billion and $76 billion, respectively. The
variation margin on these futures contracts (excluded from the table above) of $387 million and $1 million is included in Receivables—
Brokers, dealers and clearing organizations and Payables—Brokers, dealers and clearing organizations, respectively, on the consolidated
statements of financial condition.
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