Morgan Stanley 2010 Annual Report Download - page 202

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Derivatives Designated as Net Investment Hedges.
Losses
Recognized in
OCI (effective portion)
Product Type 2010 2009
One Month Ended
December 31, 2008
(dollars in millions)
Foreign exchange contracts(1) ...................................... $(285) $(278) $(102)
Debt instruments ................................................. — (192) (18)
Total ...................................................... $(285) $(470) $(120)
(1) A gain of $5 million was recognized in income related to amounts excluded from hedge effectiveness testing during 2010. A loss of $6
million and a loss of $17 million were recognized in income related to amounts excluded from hedge effectiveness testing during 2009
and the one month ended December 31, 2008, respectively. In addition, the amount excluded from the assessment of hedge effectiveness
for fiscal 2008 was not material.
The table below summarizes gains (losses) on derivative instruments not designated as accounting hedges for
2010, 2009 and the one month ended December 31, 2008, respectively:
Gains (Losses)
Recognized in Income(1)(2)
December 31, One Month Ended
December 31, 2008Product Type 2010 2009
(dollars in millions)
Interest rate contracts .......................................... $ 544 $3,515 $ 1,814
Credit contracts ............................................... (533) (2,579) (1,017)
Foreign exchange contracts ..................................... 146 469 (2,176)
Equity contracts .............................................. (2,772) (9,125) 91
Commodity contracts .......................................... 597 1,748 880
Other contracts ............................................... (160) 680 (177)
Total derivative instruments ................................. $(2,178) $(5,292) $ (585)
(1) Gains (losses) on derivative contracts not designated as hedges are primarily included in Principal transactions—Trading.
(2) Gains (losses) associated with derivative contracts that have physically settled are excluded from the table above. Gains (losses) on these
contracts are reflected with the associated cash instruments, which are also included in Principal transactions—Trading.
The Company also has certain embedded derivatives that have been bifurcated from the related structured
borrowings. Such derivatives are classified in Long-term borrowings and had a net fair value of $109 million and
$122 million at December 31, 2010 and December 31, 2009, respectively, and a notional of $4,256 million and
$5,504 million at December 31, 2010 and December 31, 2009, respectively. The Company recognized gains of
$76 million related to changes in the fair value of its bifurcated embedded derivatives for 2010. The Company
recognized losses of $70 million and $97 million related to changes in the fair value of its bifurcated embedded
derivatives for 2009 and the one month ended December 31, 2008, respectively.
At December 31, 2010 and December 31, 2009, the amount of payables associated with cash collateral received
that was netted against derivative assets was $61.9 billion and $62.7 billion, respectively, and the amount of
receivables in respect of cash collateral paid that was netted against derivative liabilities was $37.6 billion and
$31.7 billion, respectively. Cash collateral receivables and payables of $435 million and $37 million,
respectively, at December 31, 2010 and $62 million and $227 million, respectively, at December 31, 2009, were
not offset against certain contracts that did not meet the definition of a derivative.
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