Chrysler 2009 Annual Report Download - page 188

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Cash flow hedges
The effects arising on the income statement 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, mainly during the
following year.
The interest rate and currency derivatives treated as cash flow hedges were entered by the North American treasury for the purpose of hedging the bond
issue expiring in 2017; 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 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 equity is recognised in the income statement immediately.
In 2009 the Group transferred to income losses of฀€318 million (gains of฀€295 million in 2008) net of tax effect previously recognised directly in equity
presented in the following line items:
(€ million) 2009 2008
Currency risk
Increase (Decrease) in Net revenues (15) 138
Decrease (Increase) in Cost of sales (350) 115
Financial income (expenses) 71 50
Result from investments - 9
Interest rate risk
Decrease (Increase) in Cost of sales (16) -
Result from investments 3 9
Financial income (expenses) (17) (2)
Commodities price risk
Decrease (Increase) in Cost of sales (5) -
Taxes income (expenses) 11 (24)
Total recognised in the income statement (318) 295
The ineffectiveness of cash flow hedges was not material for the years 2009 and 2008.
In 2009 there was an overall positive economic effect of฀€8 million (positive effect of฀€21 million in 2008) from hedges which subsequently turned out to be
in excess of the future flows being hedged (over-hedges); this was mainly due to the contraction of volumes in certain markets exposed to currency risk.