Chrysler 2013 Annual Report Download - page 230

229
Consolidated
Financial Statements
at 31 December 2013
35. Qualitative and quantitative information on financial risks
The Group is exposed to the following financial risks connected with its operations:
credit risk, arising both from its normal commercial relations with final customers and dealers, and its financing activities;
liquidity risk, with particular reference to the availability of funds and access to the credit market and to financial instruments in general;
financial market risk (principally relating to exchange rates, interest rates and commodity prices), since the Group operates at an international
level in different currencies and uses financial instruments which generate interests. The Group is also exposed to the risk of changes in the
price of certain commodities and of certain listed shares.
These risks could significantly affect the Group’s financial position and results, and for this reason the Group systematically identifies, and
monitors these risks, in order to detect potential negative effects in advance and take the necessary action to mitigate them, primarily through
its operating and financing activities and if required, through the use of derivative financial instruments.
Financial instruments held by the funds that manage pension plan assets are not included in this analysis (see the Note 25).
The following section provides qualitative and quantitative disclosures on the effect that these risks may have upon the Group. The quantitative
data reported in the following does not have any predictive value, in particular the sensitivity analysis on finance market risks does not reflect
the complexity of the market or the reaction which may result from any changes that are assumed to take place.
Credit risk
Credit risk is the risk of economic loss arising from the failure to collect a receivable. Credit risk encompasses the direct risk of default and the
risk of a deterioration of the creditworthiness of the counterparty.
The Group’s credit risk differs in relation to the activities carried out. In particular, dealer financing and operating and financial lease activities
that are carried out through the Group’s financial services companies are exposed both to the direct risk of default and the deterioration of the
creditworthiness of the counterparty, while the sale of vehicles and spare parts is mostly exposed to the direct risk of default of the counterparty.
These risks are however mitigated by the fact that collection exposure is spread across a large number of counterparties and customers.
Taken overall, however, the credit risk regarding the Group’s trade receivables and receivables from financing activities is concentrated in the
European Union and Latin America markets for Fiat excluding Chrysler and in the North American market for Chrysler.
In order to test for impairment, significant receivables from corporate customers and receivables for which collectability is at risk are assessed
individually, while receivables from end customers or small business customers are grouped into homogeneous risk categories. A receivable
is considered impaired when there is objective evidence that the Group will be unable to collect all amounts due specified in the contractual
terms. Objective evidence may be provided by the following factors: significant financial difficulties of the counterparty, the probability that the
counterparty will be involved in an insolvency procedure or will default on its installment payments, the restructuring or renegotiation of open
items with the counterparty, changes in the payment status of one or more debtors included in a specific risk category and other contractual
breaches. The calculation of the amount of the impairment loss is based on the risk of default by the counterparty, which is determined by
taking into account all the information available as to the customer’s solvency, the fair value of any guarantees received for the receivable and
the Group’s historical experience.
The maximum credit risk to which the Group is theoretically exposed at 31 December 2013 is represented by the carrying amounts of financial
assets in the financial statements and the nominal value of the guarantees provided on liabilities and commitments to third parties as discussed
in Note 31.