Chrysler 2010 Annual Report Download - page 255

FIAT GROUP
CONSOLIDATED
FINANCIAL
STATEMENTS
AT 31 DECEMBER
2010
NOTES
254
Sensitivity analysis
In assessing the potential impact of changes in interest rates, the Group separates out fixed rate financial instruments (for which the impact is assessed
in terms of fair value) from floating rate financial instruments (for which the impact is assessed in terms of cash flows).
The fixed rate financial instruments used by the Group consist principally of part of the portfolio of the financial services companies (basically customer
financing and financial leases) and part of debt (including subsidised loans and bonds).
With respect to Continuing Operations, the potential loss in fair value of fixed rate financial instruments (including the effect of interest rate derivative financial
instruments) held at 31 December 2010, resulting from a hypothetical, unfavourable and instantaneous change of 10% in market interest rates, would have
been approximately €49 million. With respect to Discontinued Operations, the potential loss in fair value of fixed rate financial instruments (including the
effect of interest rate derivative financial instruments) held at 31 December 2010, resulting from a hypothetical, unfavourable and instantaneous change of
10% in market interest rates, would have been approximately €22 million. For the Fiat Group as a whole, the potential loss in fair value of fixed rate financial
instruments (including the effect of interest rate derivative financial instruments) held at 31 December 2009 resulting from a hypothetical, unfavourable and
instantaneous change of 10% in market interest rates would have been approximately €70 million.
Floating rate financial instruments consist principally of 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.
With respect to Continuing Operations, a hypothetical, unfavourable and instantaneous change of 10% in short-term interest rates at 31 December 2010,
applied to floating rate financial assets and liabilities, operations for the sale of receivables and derivative financial instruments, would have caused increased
net expenses before taxes, on an annual basis, of approximately €3 million. With respect to Discontinued Operations, a hypothetical, unfavourable and
instantaneous change of 10% in short-term interest rates at 31 December 2010, applied to floating rate financial assets and liabilities, operations for the sale
of receivables and derivative financial instruments, would have caused increased net expenses before taxes, on an annual basis, of approximately €9 million.
With respect to the Fiat Group as a whole, a hypothetical, unfavourable and instantaneous change of 10% in short-term interest rates at 31 December 2009,
applied to floating rate financial assets and liabilities, operations for the sale of receivables and derivative financial instruments, would have caused increased
net expenses before taxes, on an annual basis, of approximately €11 million.
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 derivative financial instruments included in Continuing Operations, whose value is linked to the price of listed shares
(predominately equity swaps on Fiat shares and after the Demerger, on a basket of Fiat S.p.A. and Fiat Industrial 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/(loss).
In addition the Group has entered derivative contracts linked to commodity prices to hedge specific exposures on supply contracts.
Sensitivity analysis
With respect to Continuing Operations 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 2010 linked to the Fiat share price would have been approximately
€32 million (€21 million at 31 December 2009). The increase 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).
With respect to Continuing Operations, 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 2010 linked to commodity prices would have been
approximately €1 million. With respect to Discontinued Operations, 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 2010 linked to commodity
prices would not have been significant. For the Fiat Group as a whole, 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 2009 linked to commodity
prices would have been approximately €3 million.