Annual Report 2004

Financial Statements
At year-end, both financial assets
and liabilities were revalued at current
market prices/rates. This applies
equally to on-balance sheet and offbalance
sheet transactions. The revaluation
of forward rate agreements
took place on the basis of the London
Interbank Offered Rate (LIBOR)
curve of the respective currency.
The arbitrage pricing principle is
used to value gold interest rate swaps
and gold forward interest rate swaps.
To this end, the products are split
into the components (the LIBOR
curve, gold swap rates and gold forward
rates) that are traded on international
exchanges.
The revaluation took place on a
currency-by-currency basis for foreign
exchange positions and on a
code-by-code basis for securities.
Securities held as permanent investment
(financial fixed assets) which
are shown under other financial assets
were valued at cost.
Gainsandlossesrealizedinthe
course of transactions were taken to
the profit and loss account. For gold,
foreign currency instruments and
securities, the average cost method
was used in accordance with the daily
netting procedure for purchases and
sales. As a rule, the realized gain or
loss was calculated by juxtaposing
the sales price of each transaction
with the average acquisition cost of
all purchases made during the day.
Inthecaseofnetsales,thecalculation
of the realized gain or loss was
based on the average cost of the
respective holding for the preceding
day.
Unrealized revaluation gains were
not taken to the profit and loss
account, but transferred to a revaluation
account on the liabilities side of
the balance sheet. Unrealized losses
were recognized in the profit and
loss account when they exceeded
previous revaluation gains registered
in the corresponding revaluation
account; they may not be reversed
against new unrealized gains in subsequent
years. Furthermore, the
OeNBÕs management determined
that unrealized foreign currency
losses that must be expensed were
to be covered by the release of an offsetting
amount from the reserve fund
for exchange risks accumulatedinthe
run-up to 1999. Unrealized losses
in any one security, currency or in
gold holdings were not netted with
unrealized gains in other securities,
currencies or gold, since netting is
prohibited under the ECBÕs accounting
guideline.
The average acquisition cost and
the value of each currency position
were calculated on the basis of the
sum total of the holdings in any one
currency or gold, including both
asset and liability positions and both
on-balance sheet and off-balance
sheet positions. Own funds invested
in foreign exchange assets are recorded
in a separate currency position.
In compliance with Article 69
paragraph 4 of the Nationalbank Act,
which stipulates that a reserve fund
for exchange risks be set up or released
on the basis of the risk assessment
of the nondomestic assets, the
value-at-risk (VaR) method was used
to calculate the currency risk. VaR
is defined as the maximum loss of a
gold or foreign currency portfolio
with a given currency diversification
at a certain level of confidence
(97.5%) and for a given holding
period (one year). The potential loss
calculated under this approach is to
be offset against the reserve fund for
exchange risks, the revaluation accounts,
the reserve for nondomestic
and price risks and the provision for
exchange rate risks.
82 ×
Annual Report 2004