Mazda 2013 Annual Report Download - page 52

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15 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS
The Company and its consolidated subsidiaries use forward foreign exchange contracts as derivative financial
instruments only for the purpose of mitigating future risks of fluctuations in foreign currency exchange rates. Also,
only for the purpose of mitigating future risks of fluctuations in interest rates with respect to borrowings, the
Company and its consolidated subsidiaries use interest rate swap contracts.
Forward foreign exchange contracts are subject to risks of foreign exchange rate changes. Also, interest rate
swap contracts are subject to risks of interest rate changes.
Use of derivatives to manage these risks could result in the risk of a counterparty defaulting on a derivative
contract. However, the Company believes that the risk of a counterparty defaulting is minimum since the Company
and its consolidated subsidiaries use only highly credible financial institutions as counterparties.
Derivative transactions are conducted in compliance with internal control rules and procedures that prescribe
transaction authority. The policies for derivative transactions of the Company and its consolidated subsidiaries are
approved by the Company’s President or Chief Financial Officer. Transactions are approved in advance by either the
Company’s Financial Services Division General Manager or Treasury Department General Manager. Based on these
approvals, the Treasury Department conducts and books the transactions as well as confirms the balance between
the counterparty of the derivatives contract. The operation of the transaction is segregated from its clerical adminis-
tration, in order to maintain internal check within the Treasury Department, and is audited periodically by the Global
Auditing Department. Derivative transactions are reported, upon execution, to the Company’s Chief Financial Officer,
Financial Services Division General Manager, and Treasury Department General Manager. The consolidated subsid-
iaries also follow internal control rules and procedures pursuant to those of the Company, obtain approval of the
Company, and conduct and manage the transactions according to the approval.
The following summarizes hedging derivative financial instruments used by the Company and its consolidated
subsidiaries and items hedged:
Hedging instruments: Hedged items:
Forward foreign exchange contracts Foreign currency-denominated transactions planned in the future
Interest rate swap contracts Interest on borrowings
Notes to Consolidated Financial Statements
Mazda Annual Report 2013
50