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10. DERIVATIVE FINANCIAL INSTRUMENTS (CONT’D)
Fair values
Disclosure concerning the fair value of derivatives are provided in Note 37.
Fair value hedge
The Bank’s fair value hedges consist of interest rate swaps and cross currency interest rate swaps. The financial instruments
hedged for interest rate risk and foreign currency risk consist of the Medium Term Notes issued by the Bank.
As at 31 December 2013, the Bank has entered into the following derivative financial instruments:
Interest Rate Swap (“IRS”) Contract is used to swap the Bank’s fixed coupon MTN into floating rate IRS. The purpose is to
convert the liability profile of a fixed MTN into floating rate cost with short term resets to match the Bank’s asset profile. This
strategy would enable a stable revenue margin over the Assets & Liabilities profile arising from the MTN programme whilst
maintaining market based pricing of its asset.
Cross Currency Interest Rate Swap (“CCIRS”) Contract is used to swap the Bank’s fixed coupon MTN into floating rate coupon
on a different currency. The purpose is to convert the liability profile of a fixed MTN into floating rate cost with short term
resets to match the Bank’s asset profile. This strategy would enable a stable revenue margin over the Assets & Liabilities
profile arising from the MTN programme whilst maintaining market based pricing of its asset.
Full details of hedging as follows:
Group and Bank
2013
Notional
Hedge instrument:
Hedging
Nature of
amount
Interest Rate Swap
Hedged item: MTN
relationship
risk
USD350 million
Floating rate of 3 months Libor
Fixed 2.875% per annum
Fair value
Interest rate
+ 1.755% pa (receive fixed
(payable semi-annually)
hedge
USD semi-annually/
pay float USD quarterly)
USD75 million
Floating rate of 3 months Libor
Fixed 2.875% per annum
Fair value
Interest rate
+ 1.765% pa (receive fixed USD
(payable semi-annually)
hedge
semi-annually/pay float
USD quarterly)
USD50 million
Floating rate of 3 months Libor
Fixed 2.875% per annum
Fair value
Interest rate
+ 1.78% pa (receive fixed USD
(payable semi-annually)
hedge
semi-annually/pay float
USD quarterly)
USD25 million
Floating rate of 3 months Libor
Fixed 2.875% per annum
Fair value
Interest rate
+ 1.75% pa (receive fixed USD
(payable semi-annually)
hedge
semi-annually/pay float
USD quarterly)
NOTESTOTHEFINANCIALSTATEMENTS
31 DECEMBER 2013
132
EXIM Bank Annual Report 2013