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Derivatives are financial instruments defining prices and maturities by reference to an underlying instrument. Derivatives may be interest rate contracts, foreign exchange contracts, equity-related and other instruments. Within the “other derivatives” category, the significance of credit derivatives has grown in the past years. Derivative transactions may be concluded over the counter (OTC), i.e. directly with the counterparty, or via exchanges. The exposure is reduced by a margin which must be deposited for exchange-traded contracts (futures and options) to absorb current price fluctuations.

In this business category, notional amounts provide relatively little information on default risk. Amounts receivable or payable under derivatives are reflected in their fair values.

Derivatives are mainly used for trading purposes. Market participants include banks (proprietary trading), securities houses, mutual funds, pension funds, and corporate customers. Customers can use these instruments to hedge risk positions against unfavourable price fluctuations and, depending on the strategies pursued by customers, they can benefit from changes in prices, exchange rates and interest rates.

Bank Austria Creditanstalt also uses derivatives for hedging proprietary positions in the banking book and for asset/liability management purposes. The bank hedges proprietary interest-rate and currency positions, and uses credit derivatives to protect its credit risk positions against credit rating fluctuations. Asset/liability management ensures the appropriate maturity structure of interest-bearing balance sheet positions. The bank also performs exchange rate management in respect of equity positions in foreign currency.

The total volume of derivative instruments increased from € 663 bn at the end of 2005 to € 667 bn at the end of 2006. Positive market values totalled € 6,797 m, negative market values totalled € 6,634 m. Interest rate derivatives, especially interest rate swaps, forward foreign exchange outright transactions and swaps as well as cross-currency swaps again accounted for the largest proportion of total volume.

Total volume of outstanding financial derivative transactions of the Bank Austria Creditanstalt Group as at 31 December 2006

Transactions with external counterparties

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MIO €

NOTIONAL AMOUNTS BY REMAINING MATURITY

 

MARKET VALUE

 

NOTIONAL AMOUNTS

 

POSITIVE MARKET VALUE

 

NEGATIVE MARKET VALUE

 

< 1 YEAR

1 – 5 YEARS

> 5 YEARS

TOTAL

 

(POSITIVE)

(NEGATIVE)

 

BANKING
BOOK

TRADING
BOOK

 

BANKING
BOOK

TRADING
BOOK

 

BANKING
BOOK

TRADING
BOOK

TOTAL

340,199

205,074

121,780

667,053

 

6,797

6,634

 

153,996

513,057

 

1,207

5,590

 

1,440

5,194

of which: OTC products

306,958

205,074

121,780

633,812

 

6,696

6,454

 

153,988

479,824

 

1,207

5,489

 

1,440

5,014

of which: exchange-traded products

33,241

–

–

33,241

 

101

180

 

8

33,233

 

–

101

 

–

180

A. Interest rate contracts

246,482

169,055

107,973

523,510

 

4,784

4,275

 

136,096

387,414

 

992

3,792

 

1,064

3,211

OTC products:

213,463

169,055

107,973

490,491

 

4,776

4,271

 

136,088

354,403

 

992

3,784

 

1,064

3,207

FRAs

15,185

1,492

–

16,677

 

12

10

 

50

16,627

 

–

12

 

–

10

Forward interest rate transactions

525

840

569

1,934

 

18

24

 

554

1,380

 

4

14

 

5

19

Single-currency swaps

186,149

152,144

98,637

436,930

 

4,590

4,061

 

133,604

303,326

 

985

3,605

 

1,021

3,040

Interest rate options bought

6,501

6,977

2,968

16,446

 

149

–

 

316

16,130

 

3

146

 

–

–

Interest rate options sold

5,012

7,073

5,231

17,316

 

–

174

 

1,443

15,873

 

–

–

 

38

136

Other interest rate contracts

91

529

568

1,188

 

7

2

 

121

1,067

 

–

7

 

–

2

Exchange-traded products:

33,019

–

–

33,019

 

8

4

 

8

33,011

 

–

8

 

–

4

Interest rate futures

1,518

–

–

1,518

 

6

2

 

8

1,510

 

–

6

 

–

2

Options on interest rate futures

31,501

–

–

31,501

 

2

2

 

–

31,501

 

–

2

 

–

2

B. Foreign exchange contracts

91,207

30,923

11,405

133,535

 

1,717

1,819

 

17,790

115,745

 

192

1,525

 

375

1,444

OTC products:

91,207

30,923

11,405

133,535

 

1,717

1,819

 

17,790

115,745

 

192

1,525

 

375

1,444

Forward foreign exchange transactions

49,637

2,181

33

51,851

 

792

876

 

196

51,655

 

1

791

 

1

875

Cross-currency swaps

5,603

17,318

11,137

34,058

 

564

745

 

17,594

16,464

 

191

373

 

374

371

Currency options bought

20,572

5,247

117

25,936

 

361

–

 

–

25,936

 

–

361

 

–

–

Currency options sold

15,395

6,177

118

21,690

 

–

198

 

–

21,690

 

–

–

 

–

198

Other foreign exchange contracts

–

–

–

–

 

–

–

 

–

–

 

–

–

 

–

–

Exchange-traded products:

–

–

–

–

 

–

–

 

–

–

 

–

–

 

–

–

Currency futures

–

–

–

–

 

–

–

 

–

–

 

–

–

 

–

–

Options on currency futures

–

–

–

–

 

–

–

 

–

–

 

–

–

 

–

–

C. Securities-related transactions

1,663

1,232

638

3,533

 

268

509

 

110

3,423

 

23

245

 

1

508

OTC products:

1,442

1,232

638

3,312

 

175

333

 

110

3,202

 

23

152

 

1

332

Securities swaps

–

–

–

–

 

–

–

 

–

–

 

–

–

 

–

–

Equity options bought

726

491

215

1,432

 

175

–

 

101

1,331

 

23

152

 

–

–

Equity options sold

716

603

405

1,724

 

–

323

 

9

1,715

 

–

–

 

1

322

Other securities-related contracts

–

138

18

156

 

–

10

 

–

156

 

–

–

 

–

10

Exchange-traded products:

221

–

–

221

 

93

176

 

–

221

 

–

93

 

–

176

Equity and equity index futures

175

–

–

175

 

92

174

 

–

175

 

–

92

 

–

174

Equity and equity index options

46

–

–

46

 

1

2

 

–

46

 

–

1

 

–

2

D. Credit and other derivatives

847

3,864

1,764

6,475

 

28

31

 

–

6,475

 

–

28

 

–

31

OTC products:

846

3,864

1,764

6,474

 

28

31

 

–

6,474

 

–

28

 

–

31

Credit default swaps

827

2,575

988

4,390

 

13

13

 

–

4,390

 

–

13

 

–

13

Total return swaps

6

47

45

98

 

–

15

 

–

98

 

–

–

 

–

15

Other credit derivatives

–

1,235

574

1,809

 

4

2

 

–

1,809

 

–

4

 

–

2

Other derivatives (commodities)

13

7

157

177

 

11

1

 

–

177

 

–

11

 

–

1

Exchange-traded products:

1

–

–

1

 

–

–

 

–

1

 

–

–

 

–

–

Other derivatives (commodities)

1

–

–

1

 

–

–

 

–

1

 

–

–

 

–

–

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