Chrysler 2009 Annual Report Download - page 154

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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 statement of financial position 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 2010, which promises to be a difficult year. The Group therefore plans to meet its requirements to settle 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 and manages those risks through the use
of derivative financial instruments in accordance with its established risk management policies.
The Group’s policy permits derivatives to be used only for managing the exposure to fluctuations in exchange and interest rates
connected with future cash flows and assets and liabilities, and not for speculative purposes.