TD Bank 2007 Annual Report Download - page 117

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Financial Results 113
Derivative Financial Instruments by Term to Maturity
(billions of Canadian dollars) 2007 2006
Remaining term to maturity
Notional principal
Within
1 year
1 to 3
years
3 to 5
years
5 to 10
years
Over
10 years Total Total
Interest rate contracts
Futures $ 169.8 $ 42.0 $ 2.0 $– $–$ 213.8 $ 279.9
Forward rate agreements 44.4 1.8 0.1 – – 46.3 50.9
Swaps 368.5 257.9 185.3 157.2 61.2 1,030.1 1,098.6
Options written 74.9 14.0 4.4 5.4 1.1 99.8 156.9
Options purchased 66.9 30.3 6.6 5.9 1.3 111.0 165.9
Total interest rate contracts 724.5 346.0 198.4 168.5 63.6 1,501.0 1,752.2
Foreign exchange contracts
Futures 1.2 – – – – 1.2 1.2
Forward contracts 235.4 31.0 13.0 0.2 – 279.6 284.5
Swaps 1.1 3.0 3.4 4.8 2.1 14.4 14.8
Cross-currency interest rate swaps 48.1 51.9 35.6 43.5 19.9 199.0 173.0
Options written 23.4 3.4 – – – 26.8 22.2
Options purchased 22.8 3.1 0.2 –0.1 26.2 19.8
Total foreign exchange contracts 332.0 92.4 52.2 48.5 22.1 547.2 515.5
Credit derivatives 15.2 40.6 79.1 58.7 3.2 196.8 158.8
Other contracts181.9 26.3 4.4 2.6 0.5 115.7 165.8
Total $ 1,153.6 $ 505.3 $ 334.1 $ 278.3 $ 89.4 $ 2,360.7 $ 2,592.3
1 Includes equity and commodity derivatives.
DERIVATIVE-RELATED RISKS
Market Risk
Derivative instruments, in the absence of any compensating
upfront cash payments, generally have no market value at incep-
tion. They obtain value, positive or negative, as relevant interest
rates, foreign exchange rates, equity, commodity or credit prices
or indices change, such that the previously contracted terms of
the derivative transactions have become more or less favourable
than what can be negotiated under current market conditions
for contracts with the same terms and the same remaining period
to expiry. The potential for derivatives to increase or decrease in
value as a result of the foregoing factors is generally referred
to as market risk. This market risk is managed by senior officers
responsible for the Bank’s trading business and is monitored
independently by the Bank’s Risk Management Group.
Credit Risk
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. Derivative-related credit risks are subject to the same
credit approval, limit and monitoring standards that are used for
managing other transactions that create credit exposure. This
includes evaluation of counterparties as to creditworthiness, and
managing the size, diversification and maturity structure of the
portfolios. The credit risk of derivatives traded over-the-counter
is limited by dealing with counterparties that are creditworthy,
and by actively pursuing risk mitigation opportunities through
the use of multi-product derivative master netting agreements,
Over-the-counter and Exchange Traded Derivative Financial Instruments
(billions of Canadian dollars) 2007 2006
Trading
Notional principal
Over-the-
counter
Exchange
traded
Total
trading
Total non-
trading Total Total
Interest rate contracts
Futures $–$ 213.8 $ 213.8 $–$ 213.8 $ 279.9
Forward rate agreements 43.3 –43.3 3.0 46.3 50.9
Swaps 881.1 –881.1 149.0 1,030.1 1,098.6
Options written 77.9 21.8 99.7 0.1 99.8 156.9
Options purchased 66.7 12.0 78.7 32.3 111.0 165.9
Total interest rate contracts 1,069.0 247.6 1,316.6 184.4 1,501.0 1,752.2
Foreign exchange contracts
Futures –1.2 1.2 –1.2 1.2
Forward contracts 241.6 –241.6 38.0 279.6 284.5
Swaps 14.4 –14.4 – 14.4 14.8
Cross-currency interest rate swaps 197.3 –197.3 1.7 199.0 173.0
Options written 26.8 –26.8 –26.8 22.2
Options purchased 23.0 –23.0 3.2 26.2 19.8
Total foreign exchange contracts 503.1 1.2 504.3 42.9 547.2 515.5
Other contracts
Credit derivatives 194.3 –194.3 2.5 196.8 158.8
Other contracts185.8 25.6 111.4 4.3 115.7 165.8
Total $ 1,852.2 $ 274.4 $ 2,126.6 $ 234.1 $ 2,360.7 $ 2,592.3
1 Includes equity and commodity derivatives.