Honda 2011 Annual Report Download - page 57

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(Foreign Currency Exchange Rate Risk)
Foreign currency forward exchange contracts and purchased option
contracts are used to hedge currency risk of sale commitments
denominated in foreign currencies (principally U.S. dollars).
Foreign currency written option contracts are entered into in
combination with purchased option contracts to offset premium
amounts to be paid for purchased option contracts.
The tables below provide information about our derivatives related
to foreign currency exchange rate risk as of March 31, 2010 and
2011. For forward exchange contracts and currency options, the
table presents the contract amounts and fair value. All forward
exchange contracts and currency contracts to which we are a party
have original maturities of less than one year.
different currencies, also serve to hedge foreign currency exchange
risk as well as interest rate risk.
The following tables provide information about Honda’s financial
instruments that were sensitive to changes in interest rates at March
31, 2010 and 2011. For finance receivables and long-term debt,
these tables present principal cash flows, fair value and related
weighted average interest rates. For interest rate swaps and currency
and interest rate swaps, the table presents notional amounts, fair
value and weighted average interest rates. Variable interest rates are
determined using formulas such as LIBOR+ and an index.
Quantitative and Qualitative Disclosure
about Market Risk
Honda is exposed to market risks, which are changes in foreign
currency exchanges rates, in interest rates and in prices of
marketable equity securities. Honda is a party to derivative financial
instruments in the normal course of business in order to manage
risks associated with changes in foreign currency exchange rates
and in interest rates. Honda does not hold any derivative financial
instruments for trading purposes.
(Interest Rate Risks)
Honda is exposed to market risk for changes in interest rates related
primarily to its debt obligations and finance receivables. In addition
to short-term financing such as commercial paper, Honda has long-
term debt with both fixed and floating rates. Our finance receivables
are primarily fixed rate. Interest rate swap agreements are mainly
used to manage interest rate risk exposure and to convert floating
rate financing (normally three-five years) to fixed rate financing in
order to match financing costs with income from finance receivables.
Foreign currency and interest rate swap agreements used among
Foreign Exchange Risk
2010 2011
Yen (millions) Average Yen (millions) Average
Contract contractual Contract contractual
Fiscal years ended March 31 amounts Fair value rate (Yen) amounts Fair value rate (Yen)
Forward Exchange Contracts
To sell US$ ¥257,822 ¥(6,076) ¥ 90.80 ¥285,212 ¥(1,229) ¥ 82.77
To sell EUR 32,188 456 126.70 34,183 (1,701) 111.63
To sell CA$ 24 57 88.58 19 (1) 83.44
To sell GBP 29,931 (108) 139.69 13,857 (253) 131.40
To sell other foreign currencies 20,761 (829) various 58,330 (3,660) various
To buy US$ 3,207 102 90.02 8,175 41 82.73
To buy other foreign currencies 3,537 34 various 3,046 65 various
Cross-currencies 231,657 (1,134) various 223,587 (1,212) various
Total ¥579,127 ¥(7,498) ¥626,409 ¥(7,950)
Currency Option Contracts
Option purchased to sell US$ ¥ 27,865 ¥ 78 various ¥ 14,746 ¥ 144 various
Option written to sell US$ 55,731 (829) various 29,491 (108) various
Option purchased to sell other currencies 3,123 (50) various — — —
Option written to sell other currencies 6,246 (26) various — — —
Total ¥ 92,965 ¥ (827) ¥ 44,237 ¥ 36
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