Chrysler 2012 Annual Report Download - page 175

Notes
174 Consolidated
Financial
Statements
at 31 December
2012
At 31 December 2012, the notional amount of Other derivative financial instruments consists of:
For €154 million (€154 million at 31 December 2011) the notional amount of four equity swaps, renewed in 2012 and expiring in 2013, entered into in
order 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). At 31 December 2012, the equity swaps have a total positive fair value of €50 million (a
positive fair value of €18 million at 31 December 2011). 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 2011), 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 2012 based on their notional amounts:
At 31 December 2012
(€ million)
within
one year
due between
one and five
years
due
beyond
five years Total
Currency risk management 9,236 1,304 - 10,540
Interest rate risk management 695 3,781 750 5,226
Interest rate and currency risk management - 1,118 - 1,118
Commodity price risk management 461 34 - 495
Other derivative financial instruments 154 - 14 168
Total notional amount 10,546 6,237 764 17,547
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.
Derivatives relating to interest rate and currency risk management are treated as cash flow hedges and were entered into by treasuries for the purpose of
hedging bonds issued in foreign currencies, in particular those issued by Fiat Finance North America in relation to a bond issued in Euro (due in 2017) and
by Fiat Finance and Trade Ltd. in relation to two bonds issued in Swiss Francs in 2012 (due in 2015 and 2016). The amount recorded in the cash flow hedge
reserve will be recognised in income according to the timing of the flows of the underlying bonds.
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 (Other comprehensive income). 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.