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TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results
100
Over-the-counter and Exchange Traded Derivative Financial Instruments
(billions of Canadian dollars) 2006 2005
Trading
Over-the- Exchange Total Total
Notional principal counter traded trading Non-trading Total Total
Interest rate contracts
Futures $ – $279.9 $ 279.9 $ – $ 279.9 $ 267.9
Forward rate agreements 46.1 – 46.1 4.8 50.9 103.9
Swaps 978.9 – 978.9 119.7 1,098.6 1,017.5
Options written 125.6 31.2 156.8 .1 156.9 89.7
Options purchased 121.8 22.1 143.9 22.0 165.9 83.8
Total interest rate contracts 1,272.4 333.2 1,605.6 146.6 1,752.2 1,562.8
Foreign exchange contracts
Futures – 1.2 1.2 – 1.2 .4
Forwardcontracts 254.3 –254.3 30.2 284.5 331.2
Swaps 14.8 –14.8 –14.8 14.2
Cross-currency interest rate swaps 173.0 – 173.0 – 173.0 160.6
Options written 22.2 – 22.2 – 22.2 35.2
Options purchased 19.8 – 19.8 – 19.8 44.9
Total foreign exchange contracts 484.1 1.2 485.3 30.2 515.5 586.5
Credit derivatives 155.8 –155.8 3.0 158.8 104.4
Other contracts1113.3 49.3 162.6 3.2 165.8 184.7
Total $2,025.6 $383.7 $2,409.3 $183.0 $2,592.3 $2,438.4
1Includes equity and commodity derivatives.
Derivative Financial Instruments by Term to Maturity
(billions of Canadian dollars) 2006 2005
Remaining term to maturity
Within 1 to 3 3 to 5 Over 5
Notional principal 1year years years years Total Total
Interest rate contracts
Futures $221.8 $51.6 $ 6.5 $ – $ 279.9 $267.9
Forward rate agreements 46.1 4.7 – .1 50.9 103.9
Swaps 418.5 254.0 206.5 219.6 1,098.6 1,017.5
Options written 110.5 19.6 10.9 15.9 156.9 89.7
Options purchased 116.6 25.2 8.5 15.6 165.9 83.8
Total interest rate contracts 913.5 355.1 232.4 251.2 1,752.2 1,562.8
Foreign exchange contracts
Futures 1.2 – – – 1.2 .4
Forward contracts 245.1 29.0 10.4 – 284.5 331.2
Swaps 2.8 2.1 4.2 5.7 14.8 14.2
Cross-currency interest rate swaps 44.1 48.3 29.8 50.8 173.0 160.6
Options written 16.3 4.1 1.7 .1 22.2 35.2
Options purchased 14.2 3.8 1.7 .1 19.8 44.9
Total foreign exchange contracts 323.7 87.3 47.8 56.7 515.5 586.5
Credit derivatives 11.4 25.0 59.0 63.4 158.8 104.4
Other contracts1112.1 39.7 9.3 4.7 165.8 184.7
Total $1,360.7 $507.1 $348.5 $376.0 $2,592.3 $2,438.4
1Includes equity and commodity derivatives.
Equity options give the purchaser of the option, for a premi-
um, the right, but not the obligation, to buy from or sell to the
writer of an option, an underlying stock index, basket of stocks
or single stock at a contracted price. Options are transacted both
over-the-counter and through exchanges.
Equity index futures are standardized contracts transacted on
an exchange. They are based on an agreement to pay or receive
a cash amount based on the difference between the contracted
price level of an underlying stock index and its corresponding
market price level at a specified future date. There is no actual
delivery of stocks that comprise the underlying index. These con-
tracts are in standard amounts with standard settlement dates.
Commodity contracts include commodity forward, futures,
swaps and options, such as precious metals and energy-related
products in both over-the-counter and exchange markets.
NOTIONAL AMOUNTS
The notional amounts are not recorded as assets or liabilities as
they represent the face amount of the contract to which a rate
or price is applied to determine the amount of cash flows to be
exchanged. Notional principal amounts do not represent the
potential gain or loss associated with market risk and are not
indicative of the credit risk associated with derivative financial
instruments.
EMBEDDED DERIVATIVES
Certain of the Bank’s deposit obligations that vary according to
the performance of certain equity levels or indices, may be sub-
ject to a guaranteed minimum redemption amount and have an
embedded derivative. The Bank accounts for the embedded deriv-
ative of such variable obligations at fair value with changes in fair
value reflected in income as they arise. The Bank does not expect
any future earnings volatility as the embedded derivatives are
effectively hedged.