Barclays 2005 Annual Report Download - page 228

57 Fair value of financial instruments (continued)
The net asset fair value position of those financial instruments where the fair values were estimated using valuation techniques which are
based in full or in part on assumptions that are not supported by observable market prices decreased by £2,877m for the year ended
31st December 2005. In many cases these changes in fair values were offset by changes in fair values of other financial instruments, which
were priced in active markets or valued by using a valuation technique which is supported by observable market prices or rates, or by
transactions which have been realised.
(c) The fair value for loans and advances, and other lending (including reverse repurchase agreements and cash collateral on securities borrowed)
is estimated using discounted cash flows, applying either market rates where practicable or, where the counterparty is a bank, rates currently
offered by other financial institutions for placings with similar characteristics. In certain cases the fair value approximates carrying value
because the instruments are short term in nature or reprice frequently.
(d) Fair values of deposit liabilities payable on demand (interest free, interest bearing and savings deposits) approximate to their carrying value.
The fair value of all other deposits and other borrowings (including repurchase agreements and cash collateral on securities lent) is estimated
using discounted cash flows, applying either market rates, where practicable, or rates currently offered by the Group for deposits of similar
remaining maturities.
(e) Fair values of short-term debt securities in issue are approximately equal to their carrying amount. Fair values of other debt securities in issue
are based on quoted prices where available, or where these are unavailable, are estimated using other valuation techniques.
(f) The estimated fair values for dated and undated convertible and non-convertible loan capital were based upon quoted market rates for the
issue concerned or equivalent issues with similar terms and conditions.
(g) The carrying value of liabilities to customers under investment contracts approximates fair value which is the same as the related assets.
(h) The Group considers that, given the lack of an established market, the diversity of fee structures and the difficulty of separating the value of the
instruments from the value of the overall transaction, it is not meaningful to provide an estimate of the fair value of financial commitments and
contingent liabilities.
58 Currency risk
Currency risk is the risk of loss resulting from changes in exchange rates. Changes in currency rates affect the value of assets and liabilities
denominated in foreign currencies and affect earnings reported by the Group’s non-UK subsidiaries and may affect revenues from foreign
exchange dealing.
The Group’s objectives and policies in managing currency risks that arise with the use of financial instruments are set out in Note 54 under the
heading ‘Market Risk Management’.
At 31st December 2005 the largest combined trading and non-trading currency exposures against Sterling included in the balance sheet,
before derivative hedging were USD net liability of £5.2bn, EUR net assets of £10.7bn, JPY net assets of £1.2bn and ZAR net assets of £2.9bn.
These amounts do not include any of the notional amounts of foreign currency derivative financial instruments that the Group has used to hedge
these exposures.
The non-trading currency exposures include long-term investments in overseas entities; such translation exposures do not impact the income
statement since the gains and losses on these exposures flow through the translation reserve in the balance sheet. In addition, these balances
include non-Sterling amounts relating to minority interests which are not hedged.
Notes to the accounts
For the year ended 31st December 2005
Barclays PLC
Annual Report 2005
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