Barclays 2005 Annual Report Download - page 236

60 2004 Financial instruments (FRS 13) (continued)
Maturity analyses of replacement cost and counterparty analyses of net replacement cost
The fair value of a derivative contract represents the amount at which that contract could be exchanged in an arms-length transaction, calculated at
market rates current at the balance sheet date. The totals of positive and negative fair values arising on trading derivatives at the balance sheet date
have been netted where the Group has a legal right of offset with the relevant counterparty. The total positive fair value after permitted netting
equates to net replacement cost.
The residual replacement cost by maturity and net replacement cost by counterparty analyses of OTC and non-margined exchange traded
derivatives held for trading and non-trading purposes at 31st December 2004 are as follows:
2004
Over one
year but not
One year more than Over five
or less five years years Total
£m £m £m £m
Replacement cost by residual maturity
Foreign exchange derivatives 9,285 6,886 4,320 20,491
Interest rate derivatives 6,121 23,130 34,701 63,952
Equity and stock index derivatives 1,750 2,312 394 4,456
Commodity derivatives 1,791 2,899 265 4,955
Credit derivatives 22 1,098 332 1,452
Total 18,969 36,325 40,012 95,306
2004
£m
Net replacement cost by counterparty
Central Banks 2,563
Banks and other financial institutions 7,043
Other corporate and public bodies 9,552
Total 19,158
Potential credit risk exposure
The potential credit risk exposure for each product equals net replacement cost as reduced by the fair value of collateral provided by the
counterparty.
At 31st December 2004, the potential credit risk exposures in respect of the Group’s trading and non-trading OTC derivatives were not significantly
different to net replacement cost.
Fair values of financial instruments
Financial instruments include both financial assets and financial liabilities and also derivatives. The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Wherever possible, the Group has estimated fair value using market prices or data available for instruments with characteristics either identical or
similar to those of the instruments held by the Group. In certain cases, however, including loans and advances to customers, no ready markets
currently exist in the UK wherein exchanges between willing parties occur. Accordingly, various techniques have been developed to estimate what
the fair value of such instruments might be.
These estimation techniques are necessarily subjective in nature and involve several assumptions. There have been no significant changes in the
estimation techniques or the methodology used compared with those used in the prior year.
Because a variety of estimation techniques are employed and significant estimates made, comparisons of fair values between financial institutions
may not be meaningful. Readers of these accounts are thus advised to use caution when using this data to evaluate the Group’s financial position.
Fair value information is not provided for items that do not meet the definitions of a financial instrument. These items include short-term debtors
and creditors, intangible assets such as the value of the Group’s branch network, the long-term relationships with depositors (core deposit
intangibles), premises and equipment and shareholders’ equity. These items are material and accordingly the fair value information presented does
not purport to represent, nor should it be construed to represent, the underlying value of the Group as a going concern at 31st December 2004.
Notes to the accounts
For the year ended 31st December 2005
Barclays PLC
Annual Report 2005
234