TD Bank 2002 Annual Report Download - page 70

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68
FINANCIAL RESULTS
Credit risk on derivative financial instruments is the risk of a
financial loss occurring as a result of a default of a counterparty
on its obligation to the Bank. The treasury
credit area is responsi-
ble for the implementation of and
compliance with credit policies
established by the Bank for the management of derivative
credit exposures.
On the following schedule, the current replacement cost,
which is the positive fair
value of all outstanding derivative
financial instruments, represents the Bank’s maximum derivative
credit exposure.
The credit equivalent amount is
the sum of
the current replacement cost and the potential future exposure,
which is calculated by applying
factors supplied by the Office
of the Superintendent of Financial Institutions Canada to the
notional principal amount of the instruments. The risk-weighted
amount is determined by applying standard measures of
counterparty credit risk to the credit equivalent amount.
Fair value of derivative financial instruments
(millions of dollars) 2002 2001
Average1fair value for the year Year-end fair value Year-end fair value
Positive Negative Positive Negative Positive Negative
Derivative financial instruments
held or issued for
trading purposes:
Interest rate contracts
Forward rate agreements $ 97 $ 99 $ 161 $ 166 $ 96 $ 107
Swaps 9,773 9,571 13,297 13,294 11,275 11,287
Options written – 702 – 1,008 – 714
Options purchased 681 – 912 – 700 –
Total interest rate contracts 10,551 10,372 14,370 14,468 12,071 12,108
Foreign exchange contracts
Forward contracts 5,260 4,985 5,124 4,360 4,142 3,506
Swaps 388 437 416 501 352 472
Cross-currency
interest rate swaps 2,901 3,444 2,327 3,051 2,748 4,155
Options written – 131 – 122 – 104
Options purchased 151 – 159 – 118 –
Total foreign exchange
contracts 8,700 8,997 8,026 8,034 7,360 8,237
Other contracts22,333 2,109 3,343 3,452 2,004 1,425
Fair value – trading $ 21,584 $ 21,478 $ 25,739 $ 25,954 $ 21,435 $ 21,770
Derivative financial instruments
held or issued for
non-trading purposes:
Interest rate contracts
Forward rate agreements $27$25$57$ 7
Swaps 1,311 1,548 2,038 2,152
Options written –––19
Options purchased 95 – 218 –
Total interest rate contracts 1,433 1,573 2,313 2,178
Foreign exchange contracts
Forward contracts 785 1,110 989 833
Cross-currency interest rate swaps 286 197 492 271
Total foreign exchange contracts 1,071 1,307 1,481 1,104
Other contracts297 27 18 –
Fair value – non-trading 2,601 2,907 3,812 3,282
Total fair value $ 28,340 $ 28,861 $ 25,247 $ 25,052
1The average fair value of trading derivative financial instruments for
the year ended October 31, 2001 was: Positive $16,286 million and
Negative $16,162 million. Averages are calculated on a monthly basis.
2Includes equity, commodity and credit derivatives.