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TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Financial Results 79
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
counterparty credit risk to the credit equivalent amount.
Fair value of derivative financial instruments
(millions of dollars) 2003 2002
Average1fair value for the year Year-end fair value Year-end fair value
Positive Negative Positive Negative Positive Negative
Derivative financial
instruments held or issued
for trading purposes:
Interest rate contracts
Forward rate agreements $ 83 $ 115 $ 47 $ 55 $ 161 $ 166
Swaps 15,108 15,136 13,581 13,581 13,297 13,294
Options written – 1,049 – 1,084 – 1,008
Options purchased 919 – 859 – 912 –
Total interest rate contracts 16,110 16,300 14,487 14,720 14,370 14,468
Foreign exchange contracts
Forward contracts 6,364 5,884 6,217 4,759 5,124 4,360
Swaps 528 405 928 281 416 501
Cross-currency
interest rate swaps 2,796 3,759 3,571 4,318 2,327 3,051
Options written – 275 – 487 – 122
Options purchased 273 – 407 – 159 –
Total foreign exchange
contracts 9,961 10,323 11,123 9,845 8,026 8,034
Other contracts22,973 3,185 2,841 3,435 3,343 3,452
Fair value – trading $29,044 $29,808 $28,451 $28,000 $25,739 $25,954
Derivative financial
instruments held or issued
for non-trading purposes:
Interest rate contracts
Forward rate agreements $4 $9 $27 $25
Swaps 821 862 1,311 1,548
Options written –6––
Options purchased 74 – 95 –
Total interest rate contracts 899 877 1,433 1,573
Foreign exchange contracts
Forward contracts 1,444 2,090 785 1,110
Cross-currency interest rate swaps 771 760 286 197
Total foreign exchange contracts 2,215 2,850 1,071 1,307
Other contracts229 21 97 27
Fair value – non-trading 3,143 3,748 2,601 2,907
Total fair value $31,594 $31,748 $28,340 $28,861
1The average fair value of trading derivative financial instruments for
the year ended October 31, 2002 was: Positive $21,584 million and
Negative $21,478 million. Averages are calculated on a monthly basis.
2Includes equity, commodity and credit derivatives.