BMW 2001 Annual Report Download - page 94
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93
Use and control of financial instruments
As an enterprise with worldwide operations, busi-
ness is conducted in a variety of currencies, from
which exchange rate risks arise. The BMW Groups
operations are financed in various currencies, mainly
by the issue of bonds and medium term notes and
through bank loans. The BMW Groups financial
management system involves the use of all standard
types of financial instrument, e.g. short-term de-
posits, investments in variable and fixed-income se-
curities as well as securities funds. The BMW Group
is therefore exposed to risks resulting from changes
in interest rates, stock market prices and exchange
rates. Financial instruments are only used to hedge
existing underlying business transactions or fore-
casted transactions.
Firstly, protection against such risks is provided
by so-called natural hedging which arises when the
value of non-derivative financial instruments have
matching maturities and amounts (netting). Deriva-
The fair values shown are computed using mar-
ket information available at the balance sheet date,
on the basis of prices quoted by the contract part-
ners or using appropriate measurement methods,
tive financial instruments are used to reduce the risk
remaining after netting.
The scope of permitted transactions, responsi-
bilities, financial reporting procedures and control
mechanisms used for financial instruments are set
out in internal guidelines. This includes, above all, a
clear separation of duties between trading and pro-
cessing. Exchange rate, interest rate and liquidity
risks of the BMW Group are managed at a corporate
level. At 31 December 2001, derivative financial in-
struments were in place to hedge exchange rate
risks, in particular for the currencies US dollar, pound
sterling and Japanese yen.
Quantitative disclosures on financial
instruments
Differences between the carrying amount and the
fair value of non-derivative financial instruments are
shown in the following table:
e.g. discounted cash flow models. In the latter case,
amounts were discounted at 31 December 2001 on
the basis of the following interest rates:
[36]Financial
instruments
in euro million 31.12.2001 31.12.2000
Carrying amount Fair value Carrying amount Fair value
Receivables from sales financing 17,398 17,712 17,082 17,359
Debt 25,665 25,327 25,029 24,654
in % EUR USD GBP JPY
Interest rate for 6 months 3.3 2.0 4.1 0.1
Interest rate for one year 3.3 2.4 4.5 0.1
Interest rate for five years 4.7 5.2 5.7 0.5
Interest rate for 10 years 5.4 6.1 5.6 1.4