BT 2000 Annual Report Download - page 96

32. Financial instruments and risk management (continued)
amount. Under gilt locks, forward sales of UK government long-dated treasury stock are entered into for periods of up to
one year. This hedge e¡ectively ¢xes in the interest on part of the group's future borrowings.
At 31 March 2000, the group had outstanding interest rate swap agreements and gilt locks having a total notional
principal amount of »2,073 million (1999 ^ »1,371 million).
(b) Foreign exchange risk management
Cross currency swaps and forward foreign exchange contracts have been entered into to reduce the foreign currency
exposure on the group's operations and the group's net assets. The group also enters into forward foreign exchange
contracts to hedge investments, interest expense and purchase and sale commitments denominated in foreign currencies
(principally US dollars, the euro and the yen). The remaining terms of the currency swaps are up to 14 years and the terms
of currency forward exchange contracts are typically less than one year. The purpose of the group's foreign currency
hedging activities is to protect the group from the risk that the eventual net in£ows and net out£ows will be adversely
a¡ected by changes in exchange rates.
At 31 March 2000, the group had outstanding foreign currency swap agreements and forward exchange contracts
having a total notional principal amount of »11,948 million (1999 ^ »5,152 million).
The fair values of forward foreign currency contracts at 31 March 2000 were »7,088 million (1999 ^ »3,100 million) for
purchases of currency and »1,852 million (1999 ^ »1,626 million) for sales of currency. These fair values have been
estimated by calculating their present values using the market discount rates, appropriate to the terms of the contracts, in
e¡ect at the balance sheet dates.
At 31 March 2000, the group had deferred unrealised gains of »18 million (1999 ^ »24 million) and losses of
»43 million (1999 ^ »29 million), based on dealer-quoted prices, from hedging purchase and sale commitments. At 31 March
2000, the group also had deferred realised net gains of »11 million (1999 ^ »1 million). These are included in the pro¢t and
loss account as part of the hedged purchase or sale transaction when it is recognised, or as gains or losses when a hedged
transaction is no longer expected to occur.
(c) Concentrations of credit risk and credit exposures of ®nancial instruments
The group considers that it is not exposed to major concentrations of credit risk. The group, however, is exposed to
credit-related losses in the event of non-performance by counterparties to ¢nancial instruments, but does not expect any
counterparties to fail to meet their obligations. Based on interest and exchange rates in e¡ect at 31 March 2000, the group
had a maximum credit exposure of »35 million (1999 --- »127 million) to one counterparty under foreign currency and
interest rate swap agreements. The group limits the amount of credit exposure to any one counterparty. The group does
not normally see the need to seek collateral or other security.
(d) Fair value of ®nancial instruments
The following table shows the carrying amounts and fair values of the group's ¢nancial instruments at 31 March 2000 and
1999. The carrying amounts are included in the group balance sheet under the indicated headings, with the exception of
derivative amounts related to borrowings, which are included in debtors or other creditors as appropriate. The fair values
of the ¢nancial instruments are the amount at which the instruments could be exchanged in a current transaction between
willing parties, other than in forced or liquidation sale.
Annual report and Form 20-F 95