TD Bank 2001 Annual Report Download - page 65

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63
FINANCIAL RESULTS
Over-the-counter and exchange traded derivative financial instruments
(billions of dollars)
Trading
Over-the- Exchange 2001 2000
Notional principal counter traded Total Non-trading Total Total
Interest rate contracts
Futures $ – $ 180.1 $ 180.1 $ – $ 180.1 $ 140.7
Forward rate agreements 84.5 – 84.5 51.2 135.7 79.6
Swaps 518.8 – 518.8 180.6 699.4 605.1
Options written 42.1 – 42.1 2.1 44.2 38.9
Options purchased 9.7 .3 10.0 41.0 51.0 46.7
Foreign exchange contracts
Forward contracts 457.6 – 457.6 21.1 478.7 347.7
Swaps 9.0 – 9.0 – 9.0 6.8
Cross-currency
interest rate swaps 78.1 – 78.1 19.0 97.1 70.9
Options written 19.3 – 19.3 – 19.3 13.8
Options purchased 16.7 – 16.7 – 16.7 11.4
Other contracts193.2 8.0 101.2 3.9 105.1 68.1
Total $ 1,329.0 $ 188.4 $ 1,517.4 $ 318.9 $ 1,836.3 $ 1,429.7
1Includes equity, commodity and credit derivatives.
Derivative financial instruments by term to maturity
(billions of dollars)
Remaining term to maturity
Within 1 to 3 3 to 5 Over 5 2001 2000
Notional principal 1 year years years years Total Total
Interest rate contracts
Futures $ 144.0 $ 36.1 $ – $ – $ 180.1 $ 140.7
Forward rate agreements 114.8 20.9 – – 135.7 79.6
Swaps 376.5 122.4 73.1 127.4 699.4 605.1
Options written 21.6 12.3 6.6 3.7 44.2 38.9
Options purchased 27.9 14.8 5.5 2.8 51.0 46.7
Foreign exchange contracts
Forward contracts 461.8 15.5 1.2 .2 478.7 347.7
Swaps .8 1.8 .7 5.7 9.0 6.8
Cross-currency
interest rate swaps 21.9 30.9 12.3 32.0 97.1 70.9
Options written 18.3 .9 .1 – 19.3 13.8
Options purchased 15.9 .8 – – 16.7 11.4
Other contracts133.2 21.0 38.2 12.7 105.1 68.1
Total $ 1,236.7 $ 277.4 $ 137.7 $ 184.5 $ 1,836.3 $ 1,429.7
1Includes equity, commodity and credit derivatives.
The Bank is exposed to market risk as a result of price volatility
in the derivatives and cash markets relating to movements in inter-
est rates, foreign exchange rates, equity prices and credit spreads.
This risk is managed by senior officers responsible for the Bank’s
trading business and is monitored separately by the Bank’s Risk
Management Division.
The estimated fair value of exchange traded derivative financial
instruments is based on quoted market rates
plus or minus daily
margin settlements
. This results in minimal fair values as these
instruments are effectively settled on a daily basis. The estimated
fair value of over-the-counter derivative
financial instruments is
determined using valuation models that incorporate
prevailing
market rates and prices on underlying instruments with
similar
maturities and characteristics. The fair value of over-the-counter
derivative financial instruments also reflects the impact of
valuation adjustments
which recognize the need to cover market,
liquidity and credit risks, as well as the cost of capital and admin-
istrative expenses over the life of the contract.