Bank of America 2005 Annual Report Download - page 107
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Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM process and serve as an efficient tool
to mitigate our risk. We use derivatives to hedge the changes in cash flows or market values of our balance sheet. See
Note 5 of the Consolidated Financial Statements for additional information on our hedging activities.
Our interest rate contracts are generally nonleveraged generic interest rate and basis swaps, options, futures, and
forwards. In addition, we use foreign currency contracts to mitigate the foreign exchange risk associated with foreign
currency-denominated assets and liabilities, as well as our equity investments in foreign subsidiaries. Table 29 reflects
the notional amounts, fair value, weighted average receive fixed and pay fixed rates, expected maturity, and estimated
duration of our open ALM derivatives at December 31, 2005 and 2004.
The changes in our swap and option positions reflect actions taken associated with interest rate risk management.
The decisions to reposition our derivative portfolio are based upon the current assessment of economic and financial
conditions including the interest rate environment, balance sheet composition and trends, and the relative mix of our
cash and derivative positions. The notional amount of our net receive fixed swap position (including foreign exchange
contracts) decreased $328 million to $22.8 billion at December 31, 2005 compared to December 31, 2004. The notional
amount of our net option position decreased $266.6 billion to $57.2 billion at December 31, 2005 compared to
December 31, 2004. The vast majority of the decrease in the option notional amount was related to terminations and
maturities of short duration options which were hedging short-term repricing risk of our liabilities.
Included in the futures and forward rate contract amounts are $35.0 billion of forward purchase contracts of
mortgage-backed securities and mortgage loans at December 31, 2005 settling from January 2006 to April 2006 with an
average yield of 5.46 percent and $46.7 billion of forward purchase contracts of mortgage-backed securities and mortgage
loans at December 31, 2004 that settled from January 2005 to February 2005 with an average yield of 5.26 percent.
There were no forward sale contracts of mortgage-backed securities at December 31, 2005, compared to $25.8 billion at
December 31, 2004 that settled from January 2005 to February 2005 with an average yield of 5.47 percent.
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