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Trade liabilities such as payables, trade and accrued expenses are generally payable within one year. Some trade liabilities are
denominated in foreign currencies in conjunction with the import of components and exposed to exchange rate fluctuation risk. Borrow-
ings, corporate bonds, and lease obligation related to finance lease transactions are mainly for the purpose of obtaining working capital
and preparing for capital expenditures. Because some of the foregoing have a floating interest rate, they are exposed to interest rate
fluctuation risk.
Derivative transactions consist primarily of the use of exchange forward contracts for the purpose of hedging exchange rate fluctua-
tion risk related to trade receivables and trade liabilities, currency swap contracts for the purpose of hedging exchange rate fluctuation
risk related to foreign currency denominated cash flow, and interest swap contracts for the purpose of hedging interest rate fluctuation
risk related to borrowings and corporate bonds.
(3) Risk Management of Financial Instruments
(i) Management of Credit Risk
The Group strives to mitigate collection risk in accordance with credit management standards and procedures in selling goods and ser-
vices. A unit independent from the sales units assesses the credit standing of customers and manages collection dates and the balance
outstanding for each customer to ensure smooth and dependable collection of trade receivables. Regarding the loan receivable, the
Group periodically assesses debtor’s financial condition, and reviews the terms of the loan if needed. The counterparties to derivative
transactions are selected upon assessment of their credit risk. The amounts of the largest credit risks as of the reporting date are indi-
cated in the balance sheet values of the financial assets that are exposed to credit risk.
(ii) Management of Market Risk
The Group utilizes mainly exchange forward contracts in respect to trade receivables and trade liabilities denominated in foreign curren-
cies to mitigate exchange rate fluctuation risk monitored by each currency respectively, currency swap contracts to mitigate the foreign
currency exchange rate fluctuation risk of cash flow denominated in foreign currency, and interest swap contracts in respect to borrow-
ings and corporate bonds to mitigate interest rate fluctuation risk. The Group regularly monitors the market price and the financial con-
dition of the issuer in respect to its securities and continuously reconsiders investment in each company, taking into account its
relationship with the counterparty.
The Group enters into derivative transactions based on regulations established by the Company. Based on policies approved by the
Chief Financial Officer (CFO), the finance division undertakes particular transactions and records them and also confirms the balance of
transactions with counterparties. In addition, the finance division reports on the content of transactions undertaken and changes in
transaction balances to the CFO and the chief of the accounting department.
(iii) Management of Liquidity Risk in Financing Activities
The Group prepares a cash flow projection and monitors its funding requirements. The Group also strives to diversify its sources of financ-
ing in order to reduce liquidity risk.
(4) Supplementary Explanation of Fair Value of Financial Instruments
The fair value of financial instruments is based on the market price, but in case a market price is not available, the fair value is reason-
ably estimated. As variable factors are incorporated in the estimation of values, fair values may vary depending on the assumptions
used. The contract amount related to derivative transactions under “13. Derivative Financial Instruments” does not represent the market
risk related to the derivative transactions.
126 FUJITSU LIMITED ANNUAL REPORT 2013