Honda 2014 Annual Report Download - page 44

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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 busi-
ness 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.
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 curren-
cies (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 following tables provide information about our derivatives related to foreign
currency exchange rate risk as of March 31, 2013 and 2014. For forward
exchange contracts and currency options, these tables present the contract
amounts and fair value. All forward exchange contracts and currency contracts to
which we are a party have original maturities within one year.
Foreign Exchange Risk 2013 2014
Fiscal years ended March 31 Yen (millions) Yen Yen (millions) Yen
Contract
amount Fair value
Average
contractual rate
Contract
amount Fair value
Average
contractual rate
Forward Exchange Contracts
To sell US$ ¥390,548 (33,197) 85.72 ¥ 98,260 (225) 103.00
To sell EUR 14,751 (2,311) 99.80 3,289 (6) 141.37
To sell CA$ 13 375 92.10 10 —91.99
To sell GBP 6,230 17 143.55 1,593 (17) 169.53
To sell other foreign currencies 108,215 (14,318) —25,373 (1,119) —
To buy US$ 3,441 493.92 3,919 21 102.39
To buy other foreign currencies 7,656 100 —2,489 31 —
Cross-currencies 216,905 1,441 —371,801 (69) —
Total ¥747,759 (47,889) —¥506,734 (1,384) —
Currency Option Contracts
Option purchased to sell US$ ¥ 2,020 33 —¥ 1,861 (11) —
Option written to sell US$ 2,019 (9) —1,860 10 —
Option purchased to sell other foreign currencies 53 1 — — — —
Option written to sell other foreign currencies 53 — — — — —
Total ¥ 4,145 25 —¥ 3,721 (1) —
Interest Rate Risk
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 to fixed rate financing (normally three-five years) in order to
match financing costs with income from finance receivables. Foreign currency and
interest rate swap agreements used among different currencies, also serve to
hedge foreign currency exchange risk as well as interest rate risk.
Honda Motor Co., Ltd. Annual Report 2014 43
6 Financial Section
1 The Power of Dreams
2 Financial Highlights
3 To Our Shareholders
4 Review of Operations
5 Corporate Governance
7
Investor Relations
Information
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