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The following table provides the fair value of our derivative financial instr uments portfolio: 

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## In order to calculate fair values: b 

Instruments are marked to market using quoted market rates and/or zero coupon valuation techniques. b 

Zero coupon curves are created using generally accepted valuation techniques from underlying instruments such as cash, bonds, futures and off-balance sheet prices observable in the market. 

## NOTE 24 Fair Value of Financial Instruments 

As a financial institution, we record trading assets at market values and non-trading assets and liabilities at their original amortized cost less allowances or write-downs for impairment. Fair value is subjective in nature, requiring a variety of valuation techniques and assumptions. The values are based upon the estimated amounts for individual assets and liabilities and do not include an estimate of the fair value of any of our legal entities or underlying operations that comprise our business. 

Fair value amounts disclosed represent point-in-time estimates that may change in subsequent reporting periods due to market conditions or other factors. Fair value generally represents our estimate of the amounts we could exchange the financial instru- ments for with third parties who were interested in acquiring the instruments. In most cases, however, the financial instruments are not typically exchangeable or exchanged and therefore it is difficult to determine their fair value. In those cases, we have estimated fair value assuming that we will not sell the assets or liabilities, taking into account only changes in interest rates and credit risk that have occurred since we acquired them or entered into a contract. These calculations represent management’s best estimates based on a range of methodologies and assumptions; since they involve uncertainties, the results may not be realized in an actual sale or immediate settle- ment of the instruments. 

Interest rate changes are the main cause of change in the fair value of our financial instruments. 

b Option implied volatilities are either obtained directly from market sources or calculated from market prices utilizing the appropriate option pricing models given our assessment and market conventions. 

Assets are shown net of liabilities to customers where we have an enforceable right to offset amounts and we intend to settle contracts on a net basis. 

Premises and equipment are not financial instruments and have been excluded from our estimate of fair value. The net amounts excluded totalled $2,159 as at October 31, 2002 and $2,170 as at October 31, 2001. 

## Determination of Fair Value 

Fair value is assumed to equal book value for acceptance assets and liabilities, securities sold but not yet purchased and securities sold under repurchase agreements. This is based on the short-term nature of these assets and liabilities. Fair value is also assumed to equal book value for our other assets and other liabilities. 

## Loans 

In determining the fair value of our loans, we incorporate the fol- lowing assumptions: 

b For fixed rate performing loans, we discount the remaining con- tractual cash flows at market interest rates currently charged for loans with similar terms and risks. 

b For floating rate performing loans, changes in interest rates have minimal impact on fair value since loans reprice to market fre- quently. On that basis, fair value is assumed to equal book value. 

The adjusted amount of our loan balances determined based on the above assumptions is further reduced by the allowance for credit losses to determine the fair value of our loan portfolio. 

