Chrysler 2008 Annual Report Download - page 206

The potential loss in fair value of fixed rate financial instruments (including the effect of interest rate derivative financial
instruments) held at 31 December 2008, resulting from a hypothetical, unfavourable and instantaneous change of 10% in market
interest rates, would have been approximately €47 million (€86 million at 31 December 2007). The minor effect compared to 2007
is due to a reduction in the residual duration of fixed rate liabilities and lower interest rate levels at the end of the year.
Floating rate financial instruments include principally cash and cash equivalents, loans provided by the financial services
companies to the sales network and part of debt. The effect of the sale of receivables is also considered in the sensitivity analysis
as well as the effect of hedging derivative instruments.
A hypothetical, unfavourable and instantaneous change of 10% in short-term interest rates at 31 December 2008, applied to floating
rate financial assets and liabilities, operations for the sale of receivables and derivatives financial instruments, would have caused
increased net expenses before taxes, on an annual basis, of approximately €26 million (€9 million at 31 December 2007). The
increase over 2007 reflects the higher level of debt.
This analysis is based on the assumption that there is a general and instantaneous change of 10% in interest rates across
homogeneous categories. A homogeneous category is defined on the basis of the currency in which the financial assets and
liabilities are denominated.
Other risks on derivative financial instruments
As described in Note 21, the Group holds certain derivative financial instruments whose value is linked to the price of listed shares
and stock market indices (principally Equity swaps on Fiat shares).
Although theses transactions were entered into for hedging purposes, they do not qualify for hedge accounting under IFRS. As a
consequence, the variability of the underlying values could have an effect on the Group’s net profit or loss.
In addition the Group entered derivatives contracts linked to commodity prices to hedge specific exposures on supply contracts.
Sensitivity analysis
In the event of a hypothetical, unfavourable and instantaneous change of 10% in the underlying values, the potential loss in fair
value of outstanding derivative financial instruments at 31 December 2008 linked to the Fiat share price would be approximately
€9 million (€37 million at 31 December 2007). The decrease over the previous year is due to the different price of the share at the
end of the year (which is used as a basis for the simulation).
In the event of a hypothetical, unfavourable and instantaneous change of 10% in the underlying raw materials prices, the potential
loss in fair value of outstanding derivative financial instruments at 31 December 2008 linked to commodity prices would be
approximately €1 million (€4 million at 31 December 2007).
Fiat Group Consolidated Financial Statements at 31 December 2008 205