BMW 2004 Annual Report Download - page 96

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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 partners
or using appropriate measurement methods, e.g.
These interest rates were adjusted, where necessary, to take account of the credit quality and risk of the un-
derlying financial instrument.
discounted cash flow models. In the latter case,
amounts were discounted at 31 December 2004 on
the basis of the following interest rates:
95
Use and control of financial instruments
As an enterprise with worldwide operations, business
is conducted in a variety of currencies, from which
exchange rate risks arise. The BMW Group’s opera-
tions are financed in various currencies, mainly by
the issue of bonds and medium term notes and
through bank loans. The BMW Group’s financial
management system involves the use of standard
types of financial instruments, 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
underlying positions or forecasted transactions.
Protection against such risks is provided at first
instance though natural hedging which arises when
the values of non-derivative financial instruments
have matching maturities and amounts (netting).
Derivative 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 2004, derivative financial in-
struments were in place to hedge exchange rate
risks, in particular for the currencies US Dollar, British
Pound and Japanese Yen.
Quantitative disclosures on financial
instruments
The carrying amount and the fair value of material
non-derivative financial instruments are set out in
the following table:
[36]Financial
instruments
in euro million 31.12. 2004 31.12. 2003
Carrying Fair value Carrying Fair value
amount amount
Receivables from sales financing 25,054 25,448 21,950 22,199
Debt 30,483 30,421 27,449 27,410
ISO Code EUR USD GBP JPY
in %
Interest rate for six months 2.2 2.8 4.9 0.1
Interest rate for one year 2.3 3.1 4.9 0.1
Interest rate for five years 3.2 4.1 4.9 0.7
Interest rate for ten years 3.8 4.7 4.9 1.5