Chrysler 2008 Annual Report Download - page 160

For €104 million (€271 million at 31 December 2007), the notional amount of derivatives embedded in certain bonds with a return
linked to stock market indices or inflation rates, as well as the notional amount of the related hedging derivatives, which convert
this exposure to floating market rate. The decrease in the notional value is due to the redemption at due date during the year of
a portion of the bonds outstanding at the end of 2007.
For €26 million (€47 million at 31 December 2007), the notional amount of derivatives linked to commodity prices hedging
specific exposures arising from supply agreements. Under these agreements there is a regular updating of the prices on the basis
of trends in the quoted prices of the raw material.
Cash flow hedges
The economic effects mainly refer to the management of the currency risk and, to a lesser extent, to the hedges relating to the debt
of the Group’s financial companies and Group treasury.
The policy of the Group for managing currency risk normally requires that future cash flows from trading activities which will occur
for accounting purposes within the following twelve months, and from orders acquired (or contracts in progress), whatever their
due dates, to be hedged. As a result, it is considered reasonable to suppose that the hedging effect arising from this and recorded
in the cash flow hedge reserve will be recognised in income, almost entirely during the following year.
With reference to the interest rate and currency derivatives entered by the North American treasury for the purpose of hedging the
bond issue expiring in 2017, and treated as cash flow hedges, the amount recorded in the cash flow hedge reserve will be
recognised in income accordingly to the timing of the flows of the underlying bond.
Where a derivative financial instrument is designated as a hedge of the exposure to variability in cash flows of a recognised asset
or liability or a highly probable forecasted transaction and could affect income statement, the effective portion of any gain or loss
on the derivative financial instrument is recognised directly in equity. The cumulative gain or loss is removed from equity and
recognised in the profit and loss account at the same time as the economic effect arising from the hedged item affects income. The
gain or loss associated with a hedge or part of a hedge that has become ineffective is recognised in the income statement
immediately. When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur,
the cumulative gain or loss realised to the point of termination remains in shareholders’ equity and is recognised at the same time
as the related transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealised gain or loss held in
shareholders’ equity is recognised in the income statement immediately.
Fiat Group Consolidated Financial Statements at 31 December 2008 159