annual report - Hypo Real Estate Holding AG

Risikoberichtbericht
Futures are standardised exchange-traded contracts to receive or sell a specific financial instrument at a specific
future date and price. FRAs (forward rate agreements) provide for the payment or receipt of the difference between
a specified interest rate and reference rate at a future trade date. Interest rate risks reflect the material risks associated
with such contracts. Where these are OTC transactions, counterparty default risk also exists.
Forward foreign exchange contracts involve an agreement to exchange two currencies at a specific price and date
agreed in advance. Exposure to changes in foreign currency exchange rates and foreign interest rates and the
counterparty default risk are the primary risks associated with forward foreign exchange contracts.
Credit default swaps are contracts which transfer credit risk on an underlying reference asset or group of assets
from one party to another in exchange for a fee. The material risk from credit default swaps is exposure to changes
in the credit risk of the underlying reference asset and the ability of the counterparties to meet the terms of the
contracts.
The notional amounts of certain types of financial instruments provide a basis for comparison with instruments
recognised on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the
current fair value of the instruments and, therefore, do not indicate the Group’s exposure to credit or price risks.
The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in
market factors such as interest rates or foreign exchange rates relative to their terms. The aggregate contractual or
notional amount of derivative financial instruments on hand, the extent to which instruments are favourable or
unfavourable, and thus the aggregate fair values of derivative financial assets and liabilities, can fluctuate
significantly from time to time. The fair values of derivative instruments held are set out below.
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