Chrysler 2008 Annual Report Download - page 204

Management believes that the funds currently available, in addition to those funds that will be generated from operating and
funding activities, will enable the Group to satisfy its requirements resulting from its investing activities and its working capital
needs and to fulfil its obligations to repay its debts at their natural due date.
Currency risk
The Group is exposed to risk resulting from changes in exchange rates, which can affect its earnings and equity. In particular:
Where a Group company incurs costs in a currency different from that of its revenues, any change in exchange rates can affect
the operating profit/(loss) of that company. In 2008, the total trade flows exposed to currency risk amounted to the equivalent of
14% of the Group’s turnover (14% in 2007). The principal exchange rates to which the Group is exposed are the following:
− EUR/USD, relating to sales in dollars made by Italian companies (in particular Ferrari and Maserati) to the North American market
and to other markets in which the dollar is the trading currency, and to the production and purchases of the Agricultural and
Construction Equipment Sector in the Euro area;
− EUR/GBP, principally in relation to sales by Fiat Group Automobiles and Iveco on the UK market;
− EUR/PLN, relating to local costs incurred in Poland regarding products sold in the Euro area;
− USD/BRL and EUR/BRL, relating to Brazilian manufacturing operations and the related import and export flows, for which the
company is a net exporter in US dollars.
The trading flows exposed to changes in these exchange rates amounted in 2008 to about 69% of the total currency risk from
trading transactions. Other significant exposures regard the exchange rates EUR/CHF, EUR/TRY, USD/CAD, AUD/USD, GBP/USD,
USD/JPY, ARS/USD and CZK/EUR. None of these exposures, taken individually, exceeded 5% of the Group’s total transaction
exchange risk exposure in 2008. It is the Group’s policy to use derivative financial instruments to hedge a certain percentage, on
average between 55% and 85%, of the trading transaction exchange risk exposure forecast for the coming 12 months (including
such risk beyond that date where it is believed to be appropriate in relation to the characteristics of the business) and to hedge
completely the exposure resulting from firm commitments.
Group companies may find themselves with trade receivables or payables denominated in a currency different from the money of
account of the company itself. In addition, in a limited number of cases, it may be convenient from an economic point of view or it
may be required under local market conditions, for companies to obtain finance or use funds in a currency different from the
money of account. Changes in exchange rates may result in exchange gains or losses arising from these situations. It is the
Group’s policy to hedge fully, whenever possible, the exposure resulting from receivables, payables and securities denominated in
foreign currencies different from the company’s money of account.
Certain of the Group’s subsidiaries are located in countries which are not members of the European monetary union, in particular
the United States, Canada, United Kingdom, Switzerland, Czech Republic, Brazil, Poland, Turkey, India, China, Argentina and South
Africa. As the Group’s reference currency is the Euro, the income statements of those countries are converted into euros using the
average exchange rate for the period, and while revenues and margins are unchanged in local currency, changes in exchange rates
may lead to effects on the converted balances of revenues, costs and the result in Euros.
The assets and liabilities of consolidated companies whose money of account is different from the euros may acquire converted
values in euros which differ as a function of the variations in exchange rates. The effects of these changes are recognised directly in
the item Cumulative translation differences included in shareholders’ equity (see Note 24).
Fiat Group Consolidated Financial Statements at 31 December 2008 203