Bank of America 2010 Annual Report Download - page 161

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accounted for as economic hedges and changes in fair value are recorded in
other income (loss).
Derivatives Designated as Accounting Hedges
The Corporation uses various types of interest rate, commodity and foreign
exchange derivative contracts to protect against changes in the fair value of
its assets and liabilities due to fluctuations in interest rates, exchange rates
and commodity prices (fair value hedges). The Corporation also uses these
types of contracts and equity derivatives to protect against changes in the
cash flows of its assets and liabilities, and other forecasted transactions
(cash flow hedges). The Corporation hedges its net investment in consoli-
dated non-U.S. operations determined to have functional currencies other
than the U.S. dollar using forward exchange contracts, cross-currency basis
swaps, and by issuing foreign currency-denominated debt (net investment
hedges).
Fair Value Hedges
The table below summarizes certain information related to the Corporation’s derivatives designated as fair value hedges for 2010, 2009 and 2008.
(Dollars in millions)
Derivative
Hedged
Item
Hedge
Ineffectiveness
2010
Derivatives designated as fair value hedges
Interest rate risk on long-term debt
(1)
$ 2,952 $(3,496) $ (544)
Interest rate and foreign currency risk on long-term debt
(1)
(463) 130 (333)
Interest rate risk on available-for-sale securities
(2, 3)
(2,577) 2,667 90
Commodity price risk on commodity inventory
(4)
19 (19) –
Total $ (69) $ (718) $ (787)
2009
Derivatives designated as fair value hedges
Interest rate risk on long-term debt
(1)
$(4,858) $ 4,082 $ (776)
Interest rate and foreign currency risk on long-term debt
(1)
932 (858) 74
Interest rate risk on available-for-sale securities
(2, 3)
791 (1,141) (350)
Commodity price risk on commodity inventory
(4)
(51) 51 –
Total
$(3,186) $ 2,134 $(1,052)
2008
Derivatives designated as fair value hedges
Interest rate risk on long-term debt
(1)
$ 4,340 $(4,143) $ 197
Interest rate and foreign currency risk on long-term debt
(1)
294 (444) (150)
Interest rate risk on available-for-sale securities
(2)
32 (51) (19)
Total
$ 4,666 $(4,638) $ 28
(1)
Amounts are recorded in interest expense on long-term debt.
(2)
Amounts are recorded in interest income on AFS securities.
(3)
Measurement of ineffectiveness in 2010 includes $7 million compared to $354 million in 2009 of interest costs on short forward contracts. The Corporation considers this as part of the cost of hedging and it is offset by the fixed
coupon receipt on the AFS security that is recognized in interest income on securities.
(4)
Amounts are recorded in trading account profits.
Bank of America 2010 159