Chrysler 2013 Annual Report Download - page 232

231
Consolidated
Financial Statements
at 31 December 2013
From an operating point of view the Group manages liquidity risk by monitoring cash flows and keeping an adequate level of funds at its
disposal. The operating cash flows, main funding operations and liquidity of the Fiat Group excluding Chrysler are centrally managed in the
Group’s treasury companies with the aim of ensuring effective and efficient management of the Group’s funds. These companies obtain funds
on the financial markets by means which may assume different technical forms.
Chrysler manages the cash generated by its operations and coverage of its funding requirements independently. In this respect Fiat has
pledged no guarantee, commitment or similar obligation in relation to any of Chrysler’s financing obligations, nor has it assumed any kind of
obligation or commitment to fund Chrysler in the future.
Details of the repayment structure of the Group’s financial assets and liabilities are provided in Note 18 - Current Receivables and Other current
assets and in Note 27 - Debt. Details of the repayment structure of derivative financial instruments are provided in Note 20.
The Group believes that the funds currently available to the treasuries of Fiat and Chrysler, in addition to those that will be generated from
operating and financing activities, will enable the Fiat Group to satisfy the requirements of its investing activities and working capital needs, fulfill
its obligations to repay its debt at the natural due dates and ensure an appropriate level of operating and strategic flexibility.
Financial market risks
The Group is exposed to the risks from fluctuations in foreign currency exchange and interest rates and the commodity prices associated with
business operations.
The Group’s exposure to currency risk arises both in connection with the geographical distribution of the Group’s industrial activities compared
to the markets in which it sells its products, and in relation to the use of external borrowing denominated in foreign currencies.
The Group’s exposure to interest rate risk arises from the need to fund industrial and financial operating activities and the necessity to deploy
surplus funds. Changes in market interest rates may have the effect of either increasing or decreasing the Group’s net profit/(loss), thereby
indirectly affecting the costs and returns of financing and investing transactions.
The Group’s exposure to commodity price risk arises from the risk of changes occurring in the price of certain raw materials used in production.
Changes in the price of raw materials could have a significant effect on the Group’s results by indirectly affecting costs and product margins.
The Group regularly assesses its exposure to finance market risk and manages those risks through the use of derivative financial instruments
in accordance with its established risk management policies.
The Group’s policy permits derivatives to be used only for managing the exposure to fluctuations in exchange and interest rates as well as
commodities prices connected with future cash flows and assets and liabilities, and not for speculative purposes.
The Group utilizes derivative financial instruments designated as fair value hedges, mainly to hedge:
the currency risk on financial instruments denominated in foreign currency;
the interest rate risk on fixed rate loans and borrowings.
The instruments used for these hedges are mainly currency forward contracts, interest rate swaps and combined interest rate and currency
financial instruments.