PNC Bank 2010 Annual Report Download - page 92
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or settlement of all of the specified litigation. It is expected
that Visa will continue to adjust the conversion ratio of Visa
Class B to Class A shares in connection with any settlements
in excess of any amounts then in escrow for that purpose and
will also reduce the conversion ratio to the extent that it adds
any funds to the escrow in the future.
Note 23 Commitments and Guarantees in the Notes To
Consolidated Financial Statements in Item 8 of this Report has
further information on our Visa indemnification obligation.
Other Investments
We also make investments in affiliated and non-affiliated
funds with both traditional and alternative investment
strategies. The economic values could be driven by either the
fixed-income market or the equity markets, or both. At
December 31, 2010, other investments totaled $318 million
compared with $368 million at December 31, 2009. We
recognized net gains related to these investments of $43
million during 2010 compared with net losses of $43 million
during 2009.
Given the nature of these investments, if market conditions
affecting their valuation were to worsen, we could incur future
losses.
Our unfunded commitments related to other investments
totaled $11 million at December 31, 2010 and $66 million at
December 31, 2009.
I
MPACT OF
I
NFLATION
Our assets and liabilities are primarily monetary in nature.
Accordingly, future changes in prices do not affect the
obligations to pay or receive fixed and determinable amounts
of money. During periods of inflation, monetary assets lose
value in terms of purchasing power and monetary liabilities
have corresponding purchasing power gains. The concept of
purchasing power, however, is not an adequate indicator of the
effect of inflation on banks because it does not take into
account changes in interest rates, which are an important
determinant of our earnings.
F
INANCIAL
D
ERIVATIVES
We use a variety of financial derivatives as part of the overall
asset and liability risk management process to help manage
interest rate, market and credit risk inherent in our business
activities. Substantially all such instruments are used to
manage risk related to changes in interest rates. Interest rate
and total return swaps, interest rate caps and floors, swaptions,
options, forwards and futures contracts are the primary
instruments we use for interest rate risk management.
Financial derivatives involve, to varying degrees, interest rate,
market and credit risk. For interest rate swaps and total return
swaps, options and futures contracts, only periodic cash
payments and, with respect to options, premiums are
exchanged. Therefore, cash requirements and exposure to
credit risk are significantly less than the notional amount on
these instruments.
Further information on our financial derivatives is presented
in Note 1 Accounting Policies and Note 16 Financial
Derivatives in the Notes To Consolidated Financial
Statements in Item 8 of this Report, which is incorporated here
by reference.
Not all elements of interest rate, market and credit risk are
addressed through the use of financial or other derivatives,
and such instruments may be ineffective for their intended
purposes due to unanticipated market changes, among other
reasons.
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