2007 REGISTRATION DOCUMENT

CONSOLIDATED FINANCIAL STATEMENTS5Notes to the financial s tatements p repared in accordance with I nternational Financial Reporting S tandards as adopted by the European Union< Contents >Interest rate sensitivity of the value of the Group’s customer banking and equity intermediation books:31 December 2007In thousands of euros less than 3 months 3 to 12 months 1 to 3 years 3 to 5 years more than 5 years TotalEUR 550 (1,274) (646) (2,022) 3,244 (148)USD 74 (309) (856) (209) (1,197) (2,497)GBP 85 (25) (59) (20) (7) (26)Other currencies 4 (11) (22) (12) 566 525TOTAL 713 (1,619) (1,583) (2,263) 2,606 (2,146)1231 December 2006In thousands of euros less than 3 months 3 to 12 months 1 to 3 years 3 to 5 years more than 5 years TotalEUR (33) (362) (1,146) (1,681) 4,468 1,246USD (99) 71 (390) (185) (768) (1,371)GBP (8) (57) (61) (49) (5) (180)Other currencies (20) (53) (12) 17 58 (10)TOTAL (160) (401) (1,609) (1,898) 3,753 (315)344.c.2Currency r iskCurrency risk and hedging of earnings generatedin foreign currenciesThe Group’s exposure to currency risks relates in particular to the earningsof foreign subsidiaries and branches. The ALM unit is responsible forhedging the variability of Group earnings due to currency movements,including positions arising from foreign-currency earnings generatedby activities located in France. Local treasury managers at foreign sitesmanage currency risk arising in relation to their functional currency.Positions relating to portfolio impairment are managed centrally by theALM function.Currency risk and hedging of net investmentsin foreign operationsThe Group’s currency position on investments in foreign operations arisesmainly on branch capital allocations and equity interests denominated inforeign currencies, financed by purchasing the currency in question.Group policy is usually to borrow the investment currency in orderto protect the investment against currency risk. Such borrowingsare documented as hedges of net investments in foreign operations.However, for most of soft currencies, the investment is financed bypurchasing the currency in question.4.c.3Hedging of i nterest r ate and c urrencyr isksHedging relationships initiated by the Group mainly consist of interestrate or currency hedges in the form of swaps, options, forwards orfutures.Depending on the hedging objective, derivative financial instrumentsused for hedging purposes are designated as either fair value hedges,cash flow hedges, or hedges of net investments in foreign operations.Each hedging relationship is formally documented at inception. Thedocumentation describes the hedging strategy; identifies the hedgeditem and the hedging instrument, and the nature of the hedged risk;and describes the methodology used to test the expected (prospective)and actual (retrospective) effectiveness of the hedge.Hedging of financial instruments recognised in thebalance sheet (fair value hedges)Fair value hedges of interest rate risks relate either to identified fixedrateassets or liabilities, or to portfolios of fixed-rate assets or liabilities.Derivatives are contracted to reduce the exposure of the fair value ofthese instruments to changes in interest rates.Identified assets consist mainly of available-for-sale securities; identifiedliabilities consist mainly of debt issued by the Group.Hedges of portfolios of financial assets and liabilities, constructed bycurrency, relate to:■ fixed-rate loans (property loans, equipment loans, consumer creditand export loans);■ fixed-rate customer deposits (demand deposits, funds deposited underhome savings contracts).To identify the hedged amount, the residual balance of the hedged itemis split into maturity bands, and a separate amount is designated for eachband. The maturity split is determined on the basis of the contractualterms of the transactions and historical observations of customerbehaviour (prepayment assumptions and estimated default rates).Demand deposits, which do not bear interest at contractual rates, arequalified as fixed rate medium-term financial liabilities. Consequently,the value of these liabilities is sensitive to changes in interest rates.Estimates of future cash outflows are based on historical analyses. Noallowance is made prospectively for the effects of potential increasesin customer wealth or for the effects of inflation.For each hedging relationship, expected hedge effectiveness is measuredby ensuring that for each maturity band, the fair value of the hedged itemsis greater than the fair value of the designated hedging instruments.5678910112007 Registration document - BNP PARIBAS 147