Freddie Mac 2004 Annual Report Download - page 120

the derivative generally oÅsets, on a cumulative basis, the cumulative change in the present value of the
hedged cash Öows.
As of December 31, 2004, the net cumulative change in the fair value of all derivatives designated in cash
Öow hedge relationships that were still open or for which the forecasted transactions had not yet occurred since
SFAS 133 was implemented on January 1, 2001 (net of amounts previously reclassiÑed to earnings through
December 31, 2004) was a loss of approximately $7.9 billion on an after-tax basis. This amount was related
almost entirely to $7.9 billion of deferred losses on closed cash Öow hedge relationships. The majority of the
closed cash Öow hedges related to the hedging of the variability of cash Öows from forecasted issuances of debt
with various derivatives. Closed cash Öow hedges involve derivatives that have been terminated or are no
longer designated in cash Öow hedge relationships. Fluctuations in prevailing market interest rates have no
impact on the deferred portion of AOCI, net of taxes, relating to losses on closed cash Öow hedges. Therefore,
the $7.9 billion in deferred losses related to closed cash Öow hedges will be recognized as a reduction of
earnings as the originally hedged forecasted transactions aÅect earnings, unless it becomes probable that the
forecasted transaction will not occur. If it is probable that the forecasted transaction will not occur, then the
entire deferred amount associated with the forecasted transaction will be reclassiÑed into earnings immedi-
ately. See ""Table 39 Ì Scheduled Amortization of Net Deferred Losses in AOCI to Income Related to
Closed Cash Flow Hedge Relationships'' for more information on expected reclassiÑcations to income of net
deferred losses related to closed cash Öow hedges during future periods.
Table 52 summarizes the notional amounts for each type of derivative, including our new contracts,
maturities and terminations during the year. This information indicates the level and type of derivative activity
undertaken during the year and reÖects our use of diÅerent derivative products in the execution of our risk
management strategies. The notional amounts of our derivatives are a reference point to determine the
payments owed between us and our counterparties under the contracts. The notional amount of a derivative is
not an indication of the fair value of the position or of the cash Öows related to the position. In most market
environments, derivatives have fair values that are a small percentage of their notional amount.
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