Chrysler 2011 Annual Report Download - page 189

Consolidated
Financial
Statements
at 31 December
2011
Notes
188
At 31 December 2011, the notional amount of Other derivative instruments consists of:
For €154 million (€204 million at 31 December 2010) the notional amount of four equity swaps, renewed in 2011 and expiring in 2012, arrange to hedge
the risk of an increase in the prices of Fiat S.p.A. and Fiat Industrial S.p.A. shares above the exercise price of the stock options granted to the Chief
Executive Officer in 2004 and 2006 (see Note 25). The notional amount is linked to the vested stock options. At 31 December 2011, the equity swaps
have a total positive fair value of €18 million (a positive fair value of €115 million at 31 December 2010). Although these equity swaps were entered into
for hedging purposes, they do not qualify for hedge accounting under IFRS and accordingly are defined as trading derivative financial instruments.
For €14 million (€14 million at 31 December 2010), the notional amount of the derivative embedded in a bond with a return linked to inflation rates, as
well as the notional amount of the related hedging derivative, which converts the exposure to floating rate.
The following table provides an analysis by due date of outstanding derivatives financial instruments at 31 December 2011 based on their notional amounts:
At 31 December 2011
(€ million)
within
one year
due between one
and five years
due beyond
five years Total
Currency risk management 9,272 1,007 - 10,279
Interest rate risk management 3,277 3,380 1,750 8,407
Interest rate and currency risk management - - 652 652
Price risk commodity management 641 49 - 690
Other derivative financial instruments 154 - 14 168
Total notional amount 13,344 4,436 2,416 20,196
Cash flow hedges
The effects recognised in profit or loss mainly relate to currency risk management and, to a lesser extent, to hedges regarding commodity price risk
management and the cash flows that are exposed to an interest rate risk.
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, be hedged. 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 into by the North American treasury for the purpose of hedging the
bond issued in Euros and maturing in 2017; the amount recorded in the cash flow hedge reserve will be recognised in income according 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 the 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 other comprehensive income and recognised in the income statement 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 Other comprehensive income 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 other comprehensive
income is recognised in profit or loss immediately.