Chrysler 2008 Annual Report Download - page 125

Fiat Group Consolidated Financial Statements at 31 December 2008124
Improvement to IAS 40 – Investment Property : this
amendment, to be adopted prospectively from 1 January 2009,
states that property under construction falls within the scope
of IAS 40 and not that of IAS 16.
IFRIC 13 – Customer Loyalty Programmes (effective from
1 January 2009).
IFRIC 15 – Agreements for the Construction of Real Estate
(effective from 1 January 2009 but not yet endorsed by the
European Union).
Risk management
Credit risk
The Group’s credit concentration risk differs in relation to the
activities carried out by the individual sectors and various
sales markets in which the Group operates; in all cases,
however, the risk is mitigated by the large number of
counterparties and customers. Considered from a global point
of view, however, there is a concentration of credit risk in trade
receivables and receivables from financing activities, in
particular dealer financing and finance leases in the European
Union market for the Fiat Group Automobiles and Trucks and
Commercial Vehicles Sectors, and in North America for the
Agricultural and Construction Equipment Sector.
Financial assets are recognised in the balance sheet net of
write-downs for the risk that counterparties will be unable to
fulfil their contractual obligations, determined on the basis of
the available information as to the creditworthiness of the
customer and historical data.
Liquidity risk
The Group is exposed to funding risk if there is difficulty in
obtaining finance for operations at any given point in time.
The cash flows, funding requirements and liquidity of Group
companies are monitored on a centralised basis, under the
control of the Group Treasury. The aim of this centralised
system is to optimise the efficiency and effectiveness of the
management of the Group’s capital resources.
Additionally, as part of its activities the Group regularly carries
out funding operations on the various financial markets which
may take on different technical forms and which are aimed at
ensuring that it has an adequate level of current and future
liquidity.
The present difficulties both in the markets in which the Group
operates and in the financial markets necessitate special
attention being given to the management of liquidity risk, and
in that sense particular emphasis is being placed on measures
taken to generate financial resources through operations and
on maintaining an adequate level of available liquidity as an
important factor in facing up to 2009, which promises to be a
difficult year. The Group therefore plans to meet its
requirements to settle financial liabilities as they fall due and
to cover expected capital expenditures by using cash flows
from operations and available liquidity, renewing or
refinancing bank loans and making recourse to the bond
market and other forms of funding.
Interest rate risk and currency risk
As a multinational group that has operations throughout the
world, the Group is exposed to market risks from fluctuations
in foreign currency exchange and interest rates.
The exposure to foreign currency risk arises both in connection
with the geographical distribution of the Group’s industrial
activities compared to the markets in which it sell products,
and in relation to the use of external borrowing denominated
in foreign currencies.
The exposure to interest rate risk arises from the need
to fund industrial and financial operating activities
and the necessity to deploy surplus funds. Changes in market
interest rates may have the effect of either increasing or
decreasing the Group’s net profit/(loss), thereby indirectly
affecting the costs and returns of financing and investing
transactions.
The Group regularly assesses its exposure to interest rate and
foreign currency risk through the use of derivative financial
instruments in accordance with its established risk
management policies.