Derivative Financial Instruments

As a result of the Cambridge acquisition, the Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly with small and medium size enterprises that are customers and derives a currency spread from this activity, which was acquired during the third quarter of 2017. Derivative transactions include:


•	Forward contracts, which are commitments to buy or sell at a future date a currency at a contract price and will be settled in cash.


•	Option contracts, which gives the purchaser, the right, but not the obligation to buy or sell within a specified time a currency at a contracted price that may be settled in cash.


•	Swap contracts, which are commitments to settlement in cash at a future date or dates, usually on an overnight basis.

The primary credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual counterparty against limits at the individual counterparty level. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. The Company does not designate any of its foreign exchange derivatives as hedging instruments in accordance with ASC 815.

The aggregate equivalent United States dollar notional amount of foreign exchange derivative customer contracts held by the Company as of September 30, 2017 (in millions) is presented in the table below. Notional amounts do not reflect the netting of offsetting trades, although these offsetting positions may result in minimal overall market risk. Aggregate derivative notional amounts can fluctuate from period to period in the normal course of business based on market conditions, levels of customer activity and other factors.



	Net Notional
Foreign exchange contracts:
Swaps	$	272.8
Futures, forwards and spot	3,174.1
Written options	1,338.6
Purchased options	1,765.0
Total	$	6,550.5

The majority of customer foreign exchange contracts are written in major currencies such as the U.S. Dollar, Canadian Dollar, British Pound, Euro and Australian Dollar.

The following table summarizes the fair value of derivatives reported in the Unaudited Consolidated Balance Sheet as of September 30, 2017 (in millions):



	Derivative Assets			Derivative Liabilities
	Fair Value			Fair Value
Derivatives - undesignated:
Over the counter	$	111.2		$	105.8
Exchange traded	—			0.4
Foreign exchange contracts	111.2			106.2
Cash collateral	(33.9		)	(20.3		)
Total net derivative assets and liabilities	$	77.3		$	85.9

The fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable have been netted to present the Company's net exposure with these counterparties. The Company recognizes all derivative assets in prepaid expense and other current assets and all derivative liabilities in other current liabilities, both net at the customer level as right of offset exists, in its Consolidated Balance Sheets at their fair value. The gain or loss on the fair value is recognized immediately within other (income) expense, net in the Consolidated Statements of Income. At September 30, 2017, $150.7 million derivative assets and $70.9 million derivative liabilities were recorded in the Consolidated Balance Sheet.