(Jamaica) Limited - FirstCaribbean International Bank

notes to the Financial Statements
Year Ended 31 October 2009
(Expressed in Jamaican dollars unless otherwise indicated)
5. Derivative Financial Instruments
The table below shows the fair values of derivative financial instruments recorded as assets or liabilities, together with their
notional amounts. The notional amount, recorded gross, is the amount of a derivative’s underlying asset, reference rate
or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the
volume of transactions outstanding at the year-end and are indicative of neither the market risk nor the credit risk.
Fair Values
Contract /
notional Amount
Assets Liabilities
$’000 $’000 $’000
As at 31 October 2009
Derivatives held for trading:
Interest rate swaps US$38,302 - (400,343)
Foreign exchange forwards US$1,068 14,521 –
As at 31 October 2008
Derivatives held for trading:
Interest rate swaps US$43,654 – (210,858)
As of October 31, 2009 the Bank has positions in the following types of derivatives:
Interest Rate Swaps
Interest rate swaps are contractual agreements between two parties to exchange movements in interest rates.
Foreign Exchange Forward Contracts
Forward exchange forward contracts are contractual agreements to buy and sell a specified amount of foreign currency
at a future date at an exchange rate fixed at inception of the contract.
Derivative financial instruments held or issued for hedging purposes
As part of its asset and liability management, the Bank uses derivatives for hedging purposes in order to reduce its
exposure to market risks. Fair value hedges are used by the Bank to protect it against changes in the fair value of specific
financial assets due to movements in interest rates. The financial assets hedged for interest rate risk include fixed interest
rate loans and available-for-sale debt securities, and are hedged by interest rate swaps.
During the year, the Bank recognised losses on hedging instruments of $144,414,000 (2008: loss of $160,100,000)
and gains on hedged items attributable to the hedged risk of $219,272,000 (2008: $21,700,000), which is included in
operating income. The Bank also recognised gains of 31,623,000 as a result of failed hedges and this is included within
operating income as these derivatives are classified as trading derivatives upon failure.
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