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Notes on the Consolidated Financial Statements (continued)
HSBC BANK CANADA
94
11 Derivatives (continued)
Fair value of derivatives designated as fair value hedges
2013 2012
Assets
$m
Liabilities
$m
Assets
$m Liabilities
$m
Interest rate .................................................................. 60 69 8 94
Gains or losses arising from the change in fair value of fair value hedges
2013
$m
2012
$m
Gains/(losses)
– on hedging instruments ......................................................................................... 81 (16)
– on hedged items attributable to the hedged risk .................................................... (80) 17
The gains and losses on ineffective portions of fair value hedges are recognized immediately in ‘Net trading income’.
Cash flow hedges
The bank’s cash flow hedges consist principally of interest rate and cross-currency swaps that are used to protect
against exposures to variability in future interest cash flows on non-trading assets and liabilities which bear interest at
variable rates or which are expected to be re-funded or reinvested in the future. The amounts and timing of future cash
flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities
on the basis of their contractual terms and other relevant factors, including estimates of prepayments and defaults. The
aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying gains
and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions. Gains and
losses are initially recognized in other comprehensive income, in the cash flow hedging reserve, and are transferred to
the income statement when the forecast cash flows affect the income statement.
Fair value of derivatives designated as cash flow hedges
2013 2012
Assets
$m
Liabilities
$m
Assets
$m Liabilities
$m
Foreign exchange ........................................................ 288 93 182 10
Interest rate .................................................................. 160 66 274 74
The schedule of forecast principal balances on which the expected interest cash flows arise as at 31 December is as follows:
2013
3 months
or less
$m
More than
3 months
but less than
1 year
$m
More than
1 year
but less than
5 years
$m
5 years
or more
$m
Assets .......................................................................... 12,480 11,827 11,207 376
Liabilities .................................................................... (8,113) (7,049) (6,461) (762)
Net cash inflow/(outflow) exposure ............................ 4,367 4,778 4,746 (386)