Chrysler 2005 Annual Report Download - page 115

114 Fiat Group Consolidated Financial Statements at D ecember 31, 2005 - N otes to the Consolidated Financial Statements
02 Fiat Group
22. O ther financial assets and O ther financial liabilities
These items include the measurement at fair value of derivative financial instruments at the balance sheet date. In particular:
At December 31, 2005 At December 31, 2004
(in millions of euros) Positive fair value Negative fair value Positive/(negative) fair value
Fair value hedges:
Exchange rate risk - Forward contracts and Exchange rate swaps
(currency swaps) 26 (16)7
Interest rate risk - Interest rate swaps and Forward rate agreement 307 (26) 467
Interest rate and exchange rate risk - Combined interest
rate and currency swaps 9(1) 190
Total Fair value hedges 342 (43) 664
Cash flow hedge:
Exchange rate risks - Forward contracts, Exchange rate swaps
(currency swaps) and Currency options 48 (95)70
Interest rate swaps and Forward rate agreement 2(3) (53)
Combined interest rate and currency swaps –– 2
Total Cash flow hedges 50 (98)19
Derivatives for trading 62 (48) (35)
O ther financial assets/(liabilities) 454 189 648
The fair value of derivative financial instruments is determined by taking into consideration market parameters at the balance sheet date and
using valuation techniques widely accepted in the financial business environment. In particular:
the fair value of forward contracts and currency swaps is determined by taking the prevailing exchange rate and interest rates in the two
currencies at the balance sheet date.
the fair value of currency options is determined using valuation techniques based on the Black-Scholes model or binomial models and
market parameters at the balance sheet date (in particular exchange rates, interest rates and volatility rates).
the fair value of interest rate swaps and forward rate agreements is determined by using the discounted cash flow method.
the fair value of derivative financial instruments acquired to hedge interest rate risk and exchange rate risk is determined using the exchange
rates prevailing at the balance sheet date and the discounted cash flow method.
the fair value of equity swaps is determined using market prices and market interest rates at the balance sheet date.
The overall decrease in O ther financial assets from 851 million euros at December 31, 2004 to 454 million euros at D ecember 31, 2005, and
the decrease in O ther financial liabilities from 203 million euros at December 31, 2004 to 189 million euros at D ecember 31, 2005, is due not
only to the changes in exchange rates and interest rates over the period, but also to the termination of certain hedging operations in advance,
as a consequence of the change in the Group’s funding structure.
As this item consists principally of hedging instruments, the change in their value is compensated by the change in the value of the
hedged item.