BMW 2010 Annual Report Download - page 128

126
74 GROUP FINANCIAL STATEMENTS
74 Income Statements
74 Statement of
Comprehensive Income
76 Balance Sheets
78 Cash Flow Statements
80 Group Statement of Changes
in Equity
81 Notes
81 Accounting Principles
and Policies
89 Notes to the Income
Statement
95 Notes to the Statement
of Comprehensive Income
96 Notes to the Balance Sheet
117 Other Disclosures
133 Segment Information
in euro million 31. 12. 2010 31. 12. 2009
Euro / Chinese Renminbi 265 201
Euro / US Dollar 103 174
Euro / British Pound 184 188
Euro / Japanese Yen 30 17
Market risks
The principal market risks to which the BMW Group is
exposed are currency risk and interest rate risk.
Protection against such risks is provided in the first in-
stance 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 remain-
ing after netting. Financial instruments are only used
tohedge underlying positions or forecast transactions.
The scope of permitted transactions, responsibilities,
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 processing. Currency and
interest rate risks are managed at a corporate level.
Further disclosures relating to risk management are pro-
vided in the Group Management Report.
Currency risk
As an enterprise with worldwide operations, business is
conducted in a variety of currencies, from which currency
risks arise. Since a significant portion of Group revenues
are generated outside the euro currency region and the
procurement of production material and funding is also
organised on a worldwide basis, the currency risk is an
extremely important factor for Group earnings.
At 31 December 2010 derivative financial instruments
were in place to hedge exchange rate risks, in particular
for the currencies Chinese renminbi, US dollar, British
pound and Japanese yen. The hedging contracts comprise
mainly option and forward currency contracts.
A description of how these risks are managed is provided
in the Group Management Report on pages 63 et seq.
The BMW
Group measures currency risks using a cash-
flow-at-risk
model.
The starting point for analysing currency risk with this
model is the identification of forecast foreign currency
transactions or “exposures”. At the end of the reporting
period, the principal exposures for the coming year were
as follows:
In the next stage, these exposures are compared to all
hedges that are in place. The net cash flow surplus repre-
sents an uncovered risk position. The cash-flow-at-risk
approach involves allocating the impact of potential
exchange rate fluctuations to operating cash flows on the
basis of probability distributions. Volatilities and corre-
lations serve as input factors to assess the relevant proba-
bility distributions.
The potential negative impact on earnings for the current
period is computed on the basis of current market prices
and exposures to a confidence level of 95% and a holding
period of up to one year for each currency. Aggregation
of these results creates a risk reduction effect due to corre-
lations between the various portfolios.
The following table shows the potential negative impact
for the BMW Group – measured on the basis of the cash-
flow
-at-risk approach – attributable at the balance sheet
date to unfavourable changes in exchange rates for the
principal currencies.
in euro million 31. 12. 2010 31. 12. 2009
Euro / Chinese Renminbi 6,256 3,119
Euro / US Dollar 3,888 3,696
Euro / British Pound 3,056 2,446
Euro / Japanese Yen 1,086 902