BMW 2007 Annual Report Download - page 125

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During the period under report, an expense of euro
4 million (2006: euro 3 million) was recognised in the
income statement to reflect the ineffective portion of
cash flow hedges.
At 31 December 2007, the BMW Group held
derivative instruments with terms of up to 41 months
(2006: 44 months) to hedge currency risks attached
to future transactions. It is expected that euro 384 mil-
lion
of net gains, recognised in equity at the balance
sheet date, will be recognised in the income state-
ment in 2008.
At 31 December 2007, the BMW Group held de-
rivative instruments with terms of up to 108 months
The difference between the gains/losses on hedging
instruments and the result recognised on hedged
items represents the ineffective portion of fair value
hedges.
Fair value hedges are mainly used to hedge
bonds and other financial liabilities.
Credit risk
Notwithstanding the existence of collateral accepted,
the carrying amounts of financial assets generally
take account of the maximum credit risk arising from
the possibility that counterparties will not be able
to fulfil their contractual obligations. The maximum
credit risk for irrevocable credit commitments relat-
ing to credit card business amounted to euro 2,082
million (2006: euro 1,395 million). The equivalent
figure for dealer financing was euro 12,043 million
(2006: euro 9,968 million).
(2006: 120 months) to hedge interest rate risks at-
tached to future transactions. It is expected that euro
5 million of net gains, recognised in equity at the
balance sheet date, will be recognised in the income
statement in 2008.
Cash flow hedges are used to hedge cash flows
arising in conjunction with the supply of vehicles to
subsidiaries.
Fair value hedges
The following table shows gains and losses on
hedging instruments and hedged items which are
deemed to be part of a fair value hedge relationship:
In the case of performance relationships under-
lying non-derivative financial instruments, collateral
will be required, information on the credit standing
of the counterparty obtained or historical data based
on the existing business relationship (i.e. payment
patterns to date) reviewed in order to minimise the
credit risk, all depending on the nature and amount
of the exposure that the BMW Group is proposing to
enter into.
Within the financial services business, the
financed items (e.g. vehicles, equipment and prop-
erty) in the retail customer and dealer lines of busi-
ness serve as first-ranking collateral with a recover-
able value. Security is also put up by customers in the
form of collateral asset pledges, asset assignment
and first-ranking mortgages, supplemented where
appropriate by warranties and guarantees. If an item
previously accepted as collateral is acquired, it un-
in euro million 2007 2006
Balance at 1 January 178 29
Total changes during the year 260 149
– of which recognised in the income statement during the period under report – 260 – 266
Balance at 31 December 438 178
in euro million 31.12. 2007 31.12. 2006
Gains/losses on hedging instruments designated as part of a fair value hedge relationship 272 159
Profit/loss from hedged items – 271 – 147
1 12
Cash flow hedges
The effect of cash flow hedges on accumulated other equity was as follows: