Chrysler 2012 Annual Report Download - page 174

173
Consolidated
Financial Statements
at 31 December 2012
The fair value of derivative financial instruments is determined by taking into consideration market parameters at the balance sheet date and using valuation
techniques widely accepted in the financial business environment. In particular:
the fair value of forward contracts and currency swaps is determined by taking the prevailing exchange rate and interest rates in the two currencies at
the balance sheet date;
the fair value of currency options is determined using suitable valuation techniques and market parameters at the balance sheet date (in particular,
exchange rates, interest rates and volatility rates);
the fair value of interest rate swaps and forward rate agreements is determined by using the discounted cash flow method;
the fair value of derivative financial instruments acquired to hedge interest rate risk and currency risk is determined using the exchange rates prevailing
at the balance sheet date and the discounted cash flow method;
the fair value of derivatives hedging commodity price risk is determined by using the discounted cash flow method, taking market parameters at the
balance sheet date where available (in particular, the future price of the underlying and interest rates);
the fair value of equity swaps is determined using market prices at the balance sheet date.
The overall change in Other financial assets (from €557 million at 31 December 2011 to €519 million at 31 December 2012) and in Other financial liabilities
(from €429 million at 31 December 2011 to €201 million at 31 December 2012) is mostly due to fluctuations in exchange rates, in interest rates and in
commodity prices during the year, and to the change in fair value of the equity swaps on Fiat S.p.A. and Fiat Industrial S.p.A. ordinary shares.
As this item consists principally of hedging derivatives financial instruments, the change in their value is compensated by the change in the value of the
hedged item.
Derivatives for trading consist principally of the following types:
derivative contracts entered for hedging purposes which do not qualify for hedge accounting;
derivatives (equity swaps) on Fiat S.p.A. and Fiat Industrial S.p.A. shares which are described below;
an embedded derivative in a bond issue in which the yield is determined as a function of trends in the inflation rate and related hedging derivative, which
converts the exposure to floating rate. The total value of the embedded derivative is offset by the value of the hedging derivative.
The cash collateral relates to Chrysler derivative contracts.
At 31 December 2012, the notional amount of outstanding derivative financial instruments is as follows:
(€ million) At 31 December 2012 At 31 December 2011
Currency risk management 10,540 10,279
Interest rate risk management 5,226 8,407
Interest rate and currency risk management 1,118 652
Commodity price risk management 495 690
Other derivative financial instruments 168 168
Total notional amount 17,547 20,196