HSBC 2001 Annual Report Download - page 222

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
220
(d) HSBC Holdings
HSBC Holdings’ investment in and indebtedness of and to subsidiary undertakings at 31 December is as
follows:
2001 2000
B
an
k
N
on-ban
k
Tota
l
B
an
k
N
on-ban
k
Tota
l
US$m US$m US$m US$m US$m US$m
Investments in subsidiary
undertakings*.............................. 43,002 6,351 49,353 43,489 2,906 46,395
Amounts owed by HSBC
undertakings................................ 6,971 2,709 9,680 6,495 3,492 9,987
Subordinated liabilities to
HSBC undertakings .................... – 3,856 3,856 – 3,903 3,903
Other amounts owed to
HSBC undertakings .................... 21 4,386 4,407 21 1,908 1,929
* Investments in subsidiary undertakings have been analysed on the basis of the business of the principal operating sub-group,
i.e. banking sub-groups which include insurance companies have been categorised as banks.
38 Financial instruments
(a) Derivatives
Off-balance-sheet financial instruments, commonly referred to as derivatives, are contracts the characteristics of
which are derived from those of the underlying assets, interest and exchange rates or indices. They include
futures, forwards, swap and options transactions in the foreign exchange, interest rate and equity markets.
Transactions are negotiated directly with customers, with HSBC acting as a counterparty, or can be dealt
through exchanges.
Nature and terms of derivatives
The following outlines the nature and terms of the most common types of derivatives used by HSBC.
Exchange rate contracts
Forward foreign exchange contracts are agreements to buy or sell fixed amounts of currency at agreed rates
of exchange on a specified future date.
Cross currency swaps are agreements to exchange, and on termination of the swap re-exchange, principal
amounts denominated in different currencies. Cross currency swaps may involve the exchange of interest
payments in one specified currency for interest payments in another specified currency for a specified period.
Currency futures are typically exchange-traded agreements to buy or sell standard amounts of a specified
currency at an agreed exchange rate on a standard future date.
Currency options give the buyer on payment of a premium the right, but not the obligation, to buy or sell
specified amounts of currency at agreed rates of exchange on or before a specified future date.
Interest rate contracts
Interest rate swaps involve the exchange of interest rate obligations with a counterparty for a specified period
without exchanging the underlying (or notional) principal. HSBC may enter a swap transaction either as an
intermediary or as a direct counterparty.
Interest rate futures are typically exchange-traded agreements to buy or sell a standard amount of a specified
fixed income security or time deposit at an agreed interest rate on a standard future date.