Ford 2006 Annual Report Download - page 49

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47
shift"), as well as a base case that assumes that interest rates remain constant at existing levels. The differences
between these scenarios and the base case over a twelve-month period represent an estimate of the sensitivity of Ford
Credit's pre-tax cash flow. The sensitivity as of year-end 2006 and 2005 was as follows (in millions):
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LQVWDQWDQHRXVLQFUHDVHLQLQWHUHVWUDWHV     
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LQVWDQWDQHRXVGHFUHDVHLQLQWHUHVWUDWHV    
Based on assumptions included in the analysis, sensitivity to a one percentage point instantaneous change in interest
rates was higher at year-end 2006 than at year-end 2005. This change primarily reflects the results of normal fluctuations
within the approved tolerances of risk management strategy. While the sensitivity analysis presented is Ford Credit's best
estimate of the impacts of specified assumed interest rate scenarios, the model Ford Credit uses for this analysis is
heavily dependent on assumptions, so that actual results could differ from those projected. Embedded in the model Ford
Credit uses are assumptions regarding the reinvestment of maturing asset principal, refinancing of maturing debt, and
predicted repayment of retail installment sale and lease contracts ahead of contractual maturity. Ford Credit's repayment
projections of retail installment sale and lease contracts ahead of contractual maturity are based on historical experience.
If interest rates or other factors were to change, the actual prepayment experience could be different than projected.
Additionally, interest rate changes of one percentage point or more are rarely instantaneous or parallel, and rates
could move more or less than the one percentage point assumed in Ford Credit's analysis. As a result, the actual impact
to pre-tax cash flow could be higher or lower than the results detailed above. The model used to conduct this analysis
also relies heavily on assumptions regarding the reinvestment of maturing asset principal, refinancing of maturing debt,
and predicted repayment of sale and lease contracts ahead of contractual maturity.
The fair value of Ford Credit's net derivative financial instruments (derivative assets less derivative liabilities) as
reported in Note 22 of the Notes to the Financial Statements as of December 31, 2006 was $1.5 billion compared with
$1.9 billion at December 31, 2005. The decrease in fair value reflects primarily mark-to-market adjustments resulting from
higher interest rates, partially offset by translation gains resulting from the weakening of the U.S. dollar against the euro
and the British pound. For additional information on Ford Credit derivatives, please refer to the "Financial Services
Sector" discussion in Note 22 of the Notes to the Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk