HSBC 2007 Annual Report Download - page 405

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The schedule of forecast principal balances on which the expected interest cash flows arise as at 31 December 2007 is
as follows:
3 months
or less
More than 3
months but less
than 1 year
5 years or less
but more than
1 year
More than
5 years
US$m US$m US$m US$m
At 31 December 2007
Assets ............................................................................ 90,575 78,215 36,952 227
Liabilities ...................................................................... (89,891) (77,389) (68,189) (5,955)
Net cash inflows/(outflows) exposure .......................... 684 826 (31,237) (5,728)
At 31 December 2006
Assets ............................................................................ 61,649 51,471 22,271 496
Liabilities ...................................................................... (96,852) (91,868) (60,712) (8,093)
Net cash outflows exposure .......................................... (35,203) (40,397) (38,441) (7,597)
This table reflects the interest rate repricing profile of the underlying hedged items.
The gains and losses on ineffective portions of such derivatives are recognised immediately in ‘Net trading income’.
During the year to 31 December 2007, a loss of US$77 million (2006: US$122 million) was recognised due to hedge
ineffectiveness.
Hedges of net investments in foreign operations
HSBC’s consolidated balance sheet is affected by exchange differences between the US dollar and all the non-US
dollar functional currencies of subsidiaries. HSBC hedges structural foreign exchange exposures only in limited
circumstances. Hedging is undertaken using forward foreign exchange contracts which are accounted for as hedges of
a net investment in a foreign operation, or by financing with borrowings in the same currencies as the functional
currencies involved.
At 31 December 2007, the fair values of outstanding financial instruments designated as hedges of net investments in
foreign operations were liabilities of US$450 million (2006: US$254 million) and notional contract values of
US$1,204 million (2006: US$995 million).
The ineffectiveness recognised in ‘Net trading income’ in the year ended 31 December 2007 that arose from hedges
in foreign operations was nil (2006: nil).
19 Financial investments
2007 2006
US$m US$m
Financial investments:
– not subject to repledge or resale by counterparties ................................................................... 271,126 197,055
– which may be repledged or resold by counterparties ............................................................... 11,874 7,751
283,000 204,806
2007 2006
Carrying
amount
Fair
value
Carrying
amount
Fair
value
US$m US$m US$m US$m
Treasury and other eligible bills ................................... 30,104 30,104 25,313 25,313
– available-for-sale .................................................. 30,104 30,104 25,268 25,268
– held-to-maturity .................................................... ––45 45
Debt securities .............................................................. 240,302 240,688 171,196 171,498
– available-for-sale .................................................. 230,534 230,534 161,870 161,870
– held-to-maturity .................................................... 9,768 10,154 9,326 9,628
Equity securities ............................................................ 12,594 12,594 8,297 8,297
– available-for-sale .................................................. 12,594 12,594 8,297 8,297
Total financial investments ........................................... 283,000 283,386 204,806 205,108