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11 Derivatives (continued)
An analysis of the derivative portfolio and related credit exposure
2013 2012
Notional
amount
$m
1
Credit
equivalent
amount
$m
2
Risk-
weighted
balance
$m
3
Notional
amount
$m
1
Credit
equivalent
amount
$m
2
Risk-
weighted
balance
$m
3
Interest rate contracts
Future .................. 1,580 – – 2,542 – –
Swaps .................. 59,248 1,070 337 59,246 1,094 382
Caps ..................... 305 6 – 578 7 1
Other interest rate
contracts ........ 3,124 – 1 – – –
64,257 1,076 338 62,366 1,101 383
Foreign exchange
contracts
Spot contracts ...... 3,866 – – 1,168 – –
Forward contracts 59,727 1,341 226 43,827 888 126
Currency swaps
and options .... 26,857 1,470 447 22,889 1,192 333
90,450 2,811 673 67,884 2,080 459
Other derivative
contracts
Commodity
contracts ........ 567 78 25 561 94 23
155,274 3,965 1,036 130,811 3,275 865
1 Notional amounts are the contract amounts used to calculate the cash flows to be exchanged. They are a common measure of the volume
of outstanding transactions, but do not represent credit or market risk exposure.
2 Credit equivalent amount is the current replacement cost plus an amount for future credit exposure associated with the potential for future
changes in currency and interest rates. The future credit exposure is calculated using a formula prescribed by OSFI in its capital adequacy
guidelines.
3 Risk-weighted balance represents a measure of the amount of regulatory capital required to support the derivative activities. It is estimated
by risk weighting the credit equivalent amounts according to the credit worthiness of the counterparties using factors prescribed by OSFI
in its capital adequacy guidelines.
Interest rate and currency futures are exchange-traded. All other contracts are over-the-counter. The notional or
contractual amounts of these instruments indicate the nominal value of transactions outstanding at the reporting date;
they do not represent amounts at risk.
Hedging instruments
The bank uses derivatives (principally interest rate swaps) for hedging purposes in the management of its own asset and
liability portfolios and structural positions. This enables the bank to optimize the overall cost to the bank of accessing
debt capital markets, and to mitigate the market risk which would otherwise arise from structural imbalances in the
maturity and other profiles of its assets and liabilities.
Fair value hedges
The bank’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the
fair value of fixed-rate long-term financial instruments due to movements in market interest rates. For qualifying fair
value hedges, all changes in the fair value of the derivative and in the fair value of the item in relation to the risk being
hedged are recognized in the income statement. If the hedge relationship is terminated, the fair value adjustment to the
hedged item continues to be reported as part of the basis of the item and is amortized to the income statement as a yield
adjustment over the remainder of the hedging period.
93