Bank of America 2011 Annual Report Download - page 168

166 Bank of America 2011
commodity contracts and physical inventories of commodities
expose the Corporation to earnings volatility. Cash flow and fair
value accounting hedges provide a method to mitigate a portion
of this earnings volatility.
The Corporation purchases credit derivatives to manage credit
risk related to certain funded and unfunded credit exposures.
Credit derivatives include credit default swaps (CDS), total return
swaps and swaptions. These derivatives are 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 consolidated 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
2011, 2010 and 2009.
Fair Value Hedges
(Dollars in millions)
Derivatives designated as fair value hedges
Interest rate risk on long-term debt (1)
Interest rate and foreign currency risk on long-term debt (1)
Interest rate risk on available-for-sale securities (2)
Commodity price risk on commodity inventory (3)
Total
Derivatives designated as fair value hedges
Interest rate risk on long-term debt (1)
Interest rate and foreign currency risk on long-term debt (1)
Interest rate risk on available-for-sale securities (2)
Commodity price risk on commodity inventory (3)
Total
Derivatives designated as fair value hedges
Interest rate risk on long-term debt (1)
Interest rate and foreign currency risk on long-term debt (1)
Interest rate risk on available-for-sale securities (2)
Commodity price risk on commodity inventory (3)
Total
Derivative
$ 4,384
780
(11,386)
16
$(6,206)
2010
$ 2,952
(463)
(2,577)
19
$ (69)
2009
$ (4,858)
932
791
(51)
$ (3,186)
2011
Hedged
Item
$(4,969)
(1,057)
10,490
(16)
$ 4,448
$ (3,496)
130
2,667
(19)
$ (718)
$ 4,082
(858)
(1,141)
51
$ 2,134
Hedge
Ineffectiveness
$ (585)
(277)
(896)
—
$ (1,758)
$ (544)
(333)
90
—
$ (787)
$ (776)
74
(350)
—
$ (1,052)
(1) Amounts are recorded in interest expense on long-term debt and in other income.
(2) Amounts are recorded in interest income on AFS securities.
(3) Amounts are recorded in trading account profits.