TD Bank 2001 Annual Report Download - page 67

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65
FINANCIAL RESULTS
Credit risk on derivative financial instruments is the risk of a
financial loss occurring as a result of a default of a counterparty
on its obligation to the Bank. The treasury
credit area is responsi-
ble for the implementation of and
compliance with credit policies
established by the Bank for the management of derivative
credit exposures.
On the following schedule, the current replacement cost,
which is the positive fair
value of all outstanding derivative
financial instruments, represents the Bank’s maximum derivative
credit exposure.
The credit equivalent amount is
the sum of the
current replacement cost and the potential future exposure,
which is calculated by applying
factors supplied by the Office of
the Superintendent of Financial Institutions Canada to the
notional principal amount of the instruments. The risk-weighted
amount is determined by applying standard measures of coun-
terparty credit risk to the credit equivalent amount.
Credit exposure of derivative financial instruments at year end
(millions of dollars) 2001)2000
Current Credit Risk- Current Credit Risk-
replace- equivalent weighted replace- equivalent weighted
ment cost1amount amount ment cost1amount amount
Interest rate contracts
Forward rate agreements $ 153 $ 258 $ 57 $10$25$ 5
Swaps 13,294 16,110 3,944 4,616 6,844 1,647
Options purchased 854 998 271 290 421 106
Total interest rate contracts 14,301 17,366 4,272 4,916 7,290 1,758
Foreign exchange contracts
Forward contracts 4,960 9,528 2,465 5,991 9,577 2,501
Swaps 352 911 272 226 622 201
Cross-currency
interest rate swaps 3,240 8,013 1,920 3,273 7,004 1,646
Options purchased 55 255 78 67 206 58
Total foreign exchange
contracts 8,607 18,707 4,735 9,557 17,409 4,406
Other contracts21,914 9,253 2,631 1,189 5,835 1,697
Total derivative financial
instruments $ 24,822 $ 45,326 $ 11,638 $ 15,662 $ 30,534 $ 7,861
Less impact of master netting
agreements and collateral 15,779 21,734 5,265 7,847 12,011 3,200
$ 9,043 $ 23,592 $ 6,373 $ 7,815 $ 18,523 $ 4,661
1Exchange traded instruments and forward foreign exchange contracts
maturing within 14 days are excluded in accordance with the guidelines
of the Office of the Superintendent of Financial Institutions Canada.
The total positive fair value of the excluded contracts at October 31, 2001
was $425 million (2000 – $719 million).
2Includes equity, commodity and credit derivatives.