TD Bank 2001 Annual Report Download - page 64

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62
FINANCIAL RESULTS
The Bank enters into derivative financial instruments, as
described below, for trading and for risk management purposes.
Interest rate swaps involve the exchange of fixed and floating
interest payment obligations based on a predetermined notional
amount. Foreign exchange swaps involve the exchange of the
principal and fixed interest payments in different currencies.
Cross-currency interest rate swaps involve the exchange of both
the principal amount and fixed and floating interest payment
obligations in two different currencies.
Forward rate agreements are contracts fixing an interest
rate to
be paid or received on a notional amount of
specified maturity
commencing at a specified future date.
Foreign exchange forward contracts are commitments to pur-
chase or sell foreign currencies for delivery at a specified date in
the future at a fixed rate.
Futures are future commitments to purchase or deliver a com-
modity or financial instrument on a specified future date at a
specified price. Futures are traded in standardized amounts on
organized exchanges and are subject to daily cash margining.
Options are agreements between two parties in which the
writer of the option grants the buyer the future right, but not
the obligation, to buy or to sell, at or by a specified
date, a
specific amount of a financial instrument at a price agreed when
the option is arranged. The writer receives a premium for selling
this instrument.
The Bank also transacts equity, commodity and credit deriva-
tives in both the exchange and over-the-counter markets.
Notional principal amounts, upon which payments are based,
are not indicative of the credit
risk associated with derivative
financial instruments.
Interest rate risk
(billions of dollars)
Total Non-
Floating Within 3 months within 1 year to Over interest
2000 rate 3 months to 1 year 1 year 5 years 5 years sensitive Total
Total assets $ 125.2 $ 37.9 $ 29.4 $ 192.5 $ 47.1 $ 4.4 $ 20.8 $ 264.8
Total liabilities and
shareholders’ equity 86.7 77.6 32.8 197.1 30.2 4.5 33.0 264.8
On-balance sheet position 38.5 (39.7) (3.4) (4.6) 16.9 (.1) (12.2) –
Off-balance sheet position – (2.2) 4.8 2.6 (3.9) 1.3 – –
Net position $ 38.5 $ (41.9) $ 1.4 $ (2.0) $ 13.0 $ 1.2 $ (12.2) $ –
Interest rate risk by currency
(billions of dollars)
Total Non-
Floating Within 3 months within 1 year to Over interest
2001 rate 3 months to 1 year 1 year 5 years 5 years sensitive Total
Canadian currency
on-balance sheet position $ 15.1 $ (13.8) $ (2.5) $ (1.2) $ 21.1 $ (.7) $ (19.1) $ .1
Foreign currency
on-balance sheet position 32.1 (29.2) (4.1) (1.2) (.4) – 1.5 (.1)
On-balance sheet position 47.2 (43.0) (6.6) (2.4) 20.7 (.7) (17.6) –
Canadian currency
off-balance sheet position – (7.1) 3.8 (3.3) 2.5 .1 – (.7)
Foreign currency
off-balance sheet position – (6.2) 6.8 .6 (.5) .6 – .7
Off-balance sheet position – (13.3) 10.6 (2.7) 2.0 .7 – –
Net position $ 47.2 $ (56.3) $ 4.0 $ (5.1) $ 22.7 $ – $ (17.6) $ –
NOTE 14 Derivative financial instruments