Mercedes 1999 Annual Report Download - page 74

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ANALYSIS OF THE FINANCIAL SITUATION
68
In accordance with applicable regulations on risk manage-
ment for banks, we have separated the trading areas from
the administrative functions of processing, financial ac-
counting and financial controlling in terms of organization,
location and systems.
EXCHANGE-RATE RISKS REDUCED BY HEDGING. The interna-
tional orientation of our business activities results in cash
receipts and payments denominated in various currencies.
Particularly due to the fact that exports from Germany ex-
ceed the flows of imports from other currency regions,
DaimlerChrysler is subject to exchange-rate risks. Net expo-
sure, which is the difference between exports and imports
in each currency, is regularly monitored within the frame-
work of the centralized foreign currency management. Cur-
rency exposures are hedged with the use of suitable finan-
cial instruments according to exchange-rate expectations
which are constantly reviewed. In this context, the opposing
currency risks of DaimlerChrysler Corporation are netted
against the currency risks of DaimlerChrysler AG. The net
assets of the Group which are invested abroad in subsidiar-
ies and affiliated companies are generally not hedged
against currency risks.
Because of the introduction of the euro on January 1, 1999,
risks connected with the currencies of the euro zone
have now been eliminated. Exchange-rate exposure for the
DaimlerChrysler Group now primarily exists for the curren-
cies shown in the following table. This table shows the
negative effects on pre-tax cash flows in 2000 and 2001 re-
sulting from a hypothetical 10% appreciation of the euro,
after consideration of the existing currency hedging which
occurred through December 31, 1999.
USD CAD
Exchange-rate sensitivities in 2000
in billions of €
Gross foreign currency exposure
Netting
Net currency exposure
Negative effect of a 10%
appreciation of the euro1)
GBP JPY Others Total
14.2 6.9 3.2 2.1 2.1 28.5
(6.8) (7.4) (0.3) (0.6) (0.3) (15.4)
7.4 (0.5) 2.9 1.5 1.8 13.1
0.12 – 0.05 0.02 0.07 0.26
USD CAD
Exchange-rate sensitivities in 2001
in billions of €
Gross foreign currency exposure
Netting
Net currency exposure
Negative effect of a 10%
appreciation of the euro1)
GBP JPY Others Total
14.8 7.1 3.7 2.0 3.1 30.7
(7.7) (7.1) (0.3) (0.2) (1.2) (16.5)
7.1 – 3.4 1.8 1.9 14.2
0.30 – 0.19 0.04 0.14 0.67
1) On cash flows before taxes, after consideration of existing hedging contracts
EARLY RECOGNITION AND CONSISTENT MANAGEMENT OF
FUTURE RISKS. In view of the global operations of the
DaimlerChrysler Group’s business units and the increas-
ingly intense competition in all markets, the business units
are subject to many risks which are inseparably connected
with entrepreneurial activity. For the early recognition and
assessment of existing risks and the formulation of an ap-
propriate response, we have developed and used effective
monitoring and control systems. Among other things, these
systems include the application of Group-wide standard
guidelines, the use of reliable software, the selection and
training of qualified personnel and constant checks by our
internal auditors. With a view to the requirements of the
German Business Monitoring and Transparency Act
(KonTraG), we have integrated the Group’s early warning
systems into a risk management system. The operating
units continuously monitor existing risks and regularly re-
port on them to the Group’s Board of Management in the
context of planning and controlling processes, taking into
consideration agreed-upon thresholds. This ensures that the
Group’s management recognizes significant risks at an
early stage and can initiate appropriate measures to deal
with them.