FirstChoice Wholesale Investments part 2 - Colonial First State

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COLONIAL FIRST STATE - FIRSTCHOICE WHOLESALE INVESTMENT FUNDS NOTES TO THE FINANCIAL STATEMENTS FOR THE REPORTING PERIOD ENDED 30 JUNE 2013 10. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (continued) a) Derivative Financial Instruments (continued) - Forward Currency Contracts Forward currency contracts are primarily used by a Fund to hedge against foreign currency exchange rate risks on its non-Australian dollar denominated trading securities. The Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed upon price on an agreed future date. Forward currency contracts are valued at the prevailing bid price at the reporting date. The Fund recognises a gain or loss equal to the change in fair value at the reporting date. - Interest Rate Swaps Interest rate swap contracts are agreements under which the parties exchange one stream of interest for another. They are used to hedge cashflows against unfavourable movements in interest rates. The contracts are for interest rates on notional principal amounts and can cover, for example, fixed interest rate to floating rate or fixed rate and floating rate to fixed rate. The party with the higher interest obligation pays the net amount to the other party. The amount received is considered an offset to the interest on investment or debt hedged. At reporting dates, the differences expected to be paid or received on the maturity of the contracts are marked-to-market with the unrealised gains and losses being recognised in investment revenue. - Cross Currency Swaps A cross currency swap is a foreign exchange agreement between two parties to exchange principal and interest payments on a loan in one currency for principal and interest payments on an equal (regarding net present value) loan in another currency. Unlike interest rate swaps, cross currency swaps involve the exchange of the principal amount. Interest payments are not netted (as they are in interest rate swaps) because they are denominated in different currencies. Cross currency swaps are valued at fair value which is based on the estimated amount the Fund would pay or receive to terminate the currency derivatives at the balance sheet date, taking into account current interest rates, foreign exchange rates, volatility and the current creditworthiness of the counterparties. - Credit Default Swaps A credit default swap is a swap contract in which the buyer makes a series of payments to the seller and, in exchange, receives a payoff if a particular credit event occurs. The credit event can be a credit instrument, typically a bond or loan, that goes into default or a company undergoing restructuring, bankruptcy or having its credit rating downgraded. Credit derivatives are valued at fair value which is based on the estimated amount the Fund would pay or receive to terminate these derivatives at the balance sheet date, taking into account current interest rates, volatility and credit risk. - Warrants Warrants are an option to purchase additional securities from the issuer at a specified price during a specified period. Warrants are valued at the prevailing market price at the end of each reporting period. The Fund recognises a gain or loss equal to the change in fair value at the end of each reporting period. Page 339
COLONIAL FIRST STATE - FIRSTCHOICE WHOLESALE INVESTMENT FUNDS NOTES TO THE FINANCIAL STATEMENTS FOR THE REPORTING PERIOD ENDED 30 JUNE 2013 10. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (continued) a) Derivative Financial Instruments (continued) FirstChoice Wholesale Moderate Contract/ Fair Values Contract/ Fair Values Notional Assets Liabilities Notional Assets Liabilities 30/06/2013 30/06/2012 $'000 $'000 $'000 $'000 $'000 $'000 Consolidated - Share price index future 13,353 109 (82) (13,084) - (165) - Interest rate futures (92,516) 47,254 (37,665) 32,746 7,883 (10,053) - Exchange traded options 43,035 54,124 (11,068) - - - - Foreign currency forward contracts 1,260,567 25,027 (44,896) 441,807 11,305 (14,364) - Interest rate swaps 983,710 5,292 (5,349) - - - - Cross currency swaps - - - - - - - Credit default swaps 54,961 2,500 (2,986) - - - - Warrants - 43 - - - - - Others 12,341 76 (49) - - - 2,275,451 134,425 (102,095) 461,469 19,188 (24,582) Parent - Share price index future - - - - - - - Interest rate futures - - - - - - - Exchange traded options - - - - - - - Foreign currency forward contracts - - - - - - - Interest rate swaps - - - - - - - Cross currency swaps - - - - - - - Credit default swaps - - - - - - - Warrants - - - - - - - Others - - - - - - - - - - - - Page 340
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FirstChoice Wholesale Investments 2
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COLONIAL FIRST STATE - FIRSTCHOICE
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FirstChoice Wholesale Investments part 2 - Colonial First State

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