TD Bank 2003 Annual Report Download - page 80

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Financial Results78
Over-the-counter and exchange traded derivative financial instruments
(billions of dollars)
Trading
Over-the- Exchange 2003 2002
Notional principal counter traded Total Non-trading Total Total
Interest rate contracts
Futures $–$195.1 $ 195.1 $ – $ 195.1 $ 186.9
Forward rate agreements 173.4 – 173.4 44.4 217.8 227.6
Swaps 667.7 – 667.7 159.3 827.0 833.0
Options written 61.8 – 61.8 – 61.8 46.4
Options purchased 70.6 – 70.6 19.3 89.9 54.3
Foreign exchange contracts
Forward contracts 317.5 – 317.5 31.6 349.1 513.3
Swaps 11.0 – 11.0 – 11.0 10.3
Cross-currency
interest rate swaps 89.9 – 89.9 15.2 105.1 106.9
Options written 44.6 – 44.6 – 44.6 29.3
Options purchased 41.4 – 41.4 – 41.4 22.7
Other contracts1102.8 9.6 112.4 8.1 120.5 133.6
Total $1,580.7 $204.7 $1,785.4 $277.9 $2,063.3 $2,164.3
1Includes equity, commodity and credit derivatives.
Derivative financial instruments by term to maturity
(billions of dollars)
Remaining term to maturity
Within 1 to 3 3 to 5 Over 5 2003 2002
Notional principal 1 year years years years Total Total
Interest rate contracts
Futures $ 148.5 $ 46.6 $ – $ – $ 195.1 $ 186.9
Forward rate agreements 183.4 34.4 – – 217.8 227.6
Swaps 328.6 175.5 129.1 193.8 827.0 833.0
Options written 30.0 19.2 5.0 7.6 61.8 46.4
Options purchased 48.0 25.3 8.2 8.4 89.9 54.3
Foreign exchange contracts
Forward contracts 320.5 27.7 .9 – 349.1 513.3
Swaps 2.3 1.3 2.2 5.2 11.0 10.3
Cross-currency
interest rate swaps 27.3 25.9 17.2 34.7 105.1 106.9
Options written 43.2 1.3 .1 – 44.6 29.3
Options purchased 39.5 1.3 .3 .3 41.4 22.7
Other contracts138.2 35.8 29.1 17.4 120.5 133.6
Total $1,209.5 $394.3 $192.1 $267.4 $2,063.3 $2,164.3
1Includes equity, commodity and credit derivatives.
The Bank is exposed to market risk as a result of price volatility
in the derivatives and cash markets relating to movements in
interest rates, foreign exchange rates, equity prices and credit
spreads. This risk is managed by senior officers responsible for
the Bank’s trading business and is monitored separately by the
Bank’s Risk Management Group.
The estimated fair value of exchange traded derivative financial
instruments is based on quoted market rates plus or minus daily
margin settlements. This results in minimal fair values as these
instruments are effectively settled on a daily basis. The estimated
fair value of over-the-counter derivative financial instruments is
determined using valuation models that incorporate prevailing
market rates and prices on underlying instruments with similar
maturities and characteristics. The fair value of over-the-counter
derivative financial instruments also reflects the impact of
valuation adjustments which recognize the need to cover market,
liquidity, model and credit risks, as well as the cost of capital and
administrative expenses over the life of the contract.