Consolidated Financial Statements 2022 · Page 117

Public Investment Fund and its subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 
(All amounts in million SAR unless otherwise stated) 
Classification: External Confidential 
114 
 
14. DERIVATIVES (continued) 
 
In the ordinary course of business of banking operations, the Group utilizes the following financial derivative instruments for both trading 
and hedging purposes: 
• 
Swaps: Swaps are commitments to exchange one set of cash flows for another. For special commission rate swaps, counterparties 
generally exchange fixed and floating rate special commission payments in a single currency without exchanging principal. For 
currency swaps, fixed special commission payments and principal are exchanged in different currencies. For cross-currency special 
commission rate swaps, principal and fixed and floating special commission payments are exchanged in different currencies. 
• 
Forwards and futures: Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or 
financial instrument at a specified price and date in the future. Forwards are customized contracts transacted in the over-the-counter 
market. Foreign currency and special commission rate futures are transacted in standardized amounts on regulated exchanges. 
Changes in futures contract values are settled daily 
• 
Options: Options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the 
obligation, to either buy or sell at a fixed future date or at any time during a specified period, a specified amount of a currency, 
commodity or financial instrument at a pre-determined price. 
• 
Structured derivative products: Structured derivative products provide financial solutions to the customers of the Group to 
manage their risks in respect of foreign exchange, special commission rate and commodity exposures and enhance yields by allowing 
deployment of excess liquidity within specific risk and return profiles. The majority of the Group's structured derivative transactions 
are entered on a back-to-back basis with various counterparties. 
 
Most of the Group’s derivative trading activities relate to sales, positioning and arbitrage. Sales activities involve offering products to 
customers and banks in order, inter alia, to enable them to transfer, modify or reduce current and future risks. Positioning involves managing 
market risk positions with the expectation of profiting from favorable movements in prices, rates or indices. Arbitrage involves profiting from 
price differentials between markets or products. 
 
As part of its asset and liability management, the Group’s banking subsidiaries uses derivatives for hedging purposes in order to adjust its 
own exposure to currency and special commission rate risks. This is generally achieved by hedging specific transactions as well as strategic 
hedging against overall statement of financial position exposures. Strategic hedging does not qualify for special hedge accounting and the 
related derivatives are accounted for as held for trading, such as special commission rate swaps, special commission rate options and futures, 
forward foreign exchange contracts and currency options. 
 
For non-banking operations, the Group utilizes derivative financial instruments (e.g. swaps, forwards, futures, and options) to manage certain 
market risk exposures. For non-banking operations, the Group does not use derivative financial ins