Citigroup Inc.

Cash Flow HedgesHedging of benchmark interest rate riskCitigroup hedges variable cash flows resulting from floating-rate liabilitiesand rollover (re-issuance) of short-term liabilities. Variable cash flowsfrom those liabilities are converted to fixed-rate cash flows by entering intoreceive-variable, pay-fixed interest rate swaps and receive-variable, pay-fixedforward-starting interest rate swaps. These cash-flow hedging relationshipsuse either regression analysis or dollar-offset ratio analysis to assess whetherthe hedging relationships are highly effective at inception and on an ongoingbasis. Since efforts are made to match the terms of the derivatives to those ofthe hedged forecasted cash flows as closely as possible, the amount of hedgeineffectiveness is not significant.Hedging of foreign exchange riskCitigroup locks in the functional currency equivalent cash flows of longtermdebt and short-term borrowings that are denominated in a currencyother than the functional currency of the issuing entity. Depending on therisk management objectives, these types of hedges are designated as eithercash flow hedges of only foreign exchange risk or cash flow hedges of bothforeign exchange and interest rate risk, and the hedging instruments usedare foreign exchange cross-currency swaps and forward contracts. Thesecash flow hedge relationships use dollar-offset ratio analysis to determinewhether the hedging relationships are highly effective at inception and on anongoing basis.Hedging total returnCitigroup generally manages the risk associated with highly leveragedfinancing it has entered into by seeking to sell a majority of its exposuresto the market prior to or shortly after funding. The portion of the highlyleveraged financing that is retained by Citigroup is hedged with a totalreturn swap.The amount of hedge ineffectiveness on the cash flow hedges recognizedin earnings for the years ended December 31, 2010 and December 31, 2009 isnot significant.The pretax change in Accumulated other comprehensive income (loss)from cash flow hedges for years ended December 31, 2010 and December 31,2009 is presented below:In millions of dollars 2010 2009Effective portion of cash flowhedges included in AOCIInterest rate contracts $ (469) $ 488Foreign exchange contracts (570) 689Total effective portion of cash flowhedges included in AOCI $(1,039) $ 1,177Effective portion of cash flowhedges reclassified from AOCIto earningsInterest rate contracts $(1,400) $(1,687)Foreign exchange contracts (500) (308)Total effective portion of cash flowhedges reclassified from AOCI toearnings (1) $(1,900) $(1,995)(1) Included primarily in Other revenue and Net interest revenue on the Consolidated Income Statement.For cash flow hedges, any changes in the fair value of the end-userderivative remaining in Accumulated other comprehensive income (loss)on the Consolidated Balance Sheet will be included in earnings of futureperiods to offset the variability of the hedged cash flows when such cashflows affect earnings. The net loss associated with cash flow hedges expectedto be reclassified from Accumulated other comprehensive income (loss)within 12 months of December 31, 2010 is approximately $1.5 billion. Themaximum length of time over which forecasted cash flows are hedged is10 years.The impact of cash flow hedges on AOCI is also shown in Note 21 to theConsolidated Financial Statements.255