Mercedes 2003 Annual Report Download - page 107
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Please find page 107 of the 2003 Mercedes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.completion of the system. Contract termination by the Federal
Ministry of Transport could also have a substantial negative impact
on the Group’s operating results and financial condition. Additional
information on the planned toll collection system and the
associated risks can be found in Note 30 (Litigation and claims)
and Note 31 (Commitments and contingencies) of the Notes to the
Consolidated Financial Statements.
DaimlerChrysler AG bears a proportionate share of the risks of its
affiliated companies and subsidiaries in line with its share of their
equity capital. In the case of the investment in Mitsubishi Motors
Corporation, these are mainly risks if shareholders fail to provide
capital injections and sales risks due to the general economic
situation in Japan and the NAFTA region. EADS is also subject to
sales risks if airlines’ demand for aircraft remains low as a result of
sustantially low passenger numbers.
Transparency of market risks. The DaimlerChrysler Group is
exposed to market risks from changes in foreign currency
exchange rates and interest rates. These changes may adversely
affect DaimlerChrysler’s operating results and financial condition.
The Group seeks to manage and control these risks primarily
through its regular operating and financing activities, and, when we
deem it appropriate, through the use of derivative financial
instruments. DaimlerChrysler evaluates these market risks by
monitoring changes in key economic indicators and market
information on an ongoing basis.
DaimlerChrysler holds investments in equity securities, but only
to a minor extent. The corresponding market risk in 2003 was not
and is currently not material to the Group. Thus, DaimlerChrysler is
not presenting the value-at-risk figures for the remaining equity
price risk. According to international banking standards, Daimler-
Chrysler does not include investments in equity securities, which
the Group classifies as long term investments in the equity price
risk assessment.
To a minor degree, DaimlerChrysler is also exposed to market
price risks associated with the purchase of some commodities.
When the Group deems it necessary, DaimlerChrysler uses
derivative instruments to reduce these risks. The risk resulting
from derivative commodity instruments is not significant to the
Group.
Any market sensitive instruments, including equity and interest
bearing securities that DaimlerChrysler’s pension plans hold
are not included in this quantitative and qualitative analysis.
Please refer to Note 25a to the Group’s Consolidated Financial
Statements for additional information regarding the Group’s
pension plans.
In order to quantify the foreign exchange rate risk, interest rate risk
and equity price risk of the Group on a continuous basis,
DaimlerChrysler’s risk management control systems employ value-
at-risk analyses as recommended by the Bank for International
Settlements. The value-at-risk calculations employed by
DaimlerChrysler express potential losses in fair values and are
based on the variance-covariance-approach assuming a 99%
confidence level and a holding period of five days. Estimates of
volatilities and correlations are primarily drawn from the
RiskMetrics™ datasets and supplemented by additional exchange
rate, interest rate and equity price information. The Group does not
use financial instruments for speculative purposes.
Following organizational standards in the international banking
industry, DaimlerChrysler maintains risk management control
systems independent of Corporate Treasury and with a separate
reporting line.
Foreign exchange rate management. The global nature of
DaimlerChrysler’s business activities results in cash receipts and
payments denominated in various currencies. Cash inflows and
outflows of the business segments are offset and netted if they are
denominated in the same currency. Within the framework of
central currency management, currency exposures are regularly
assessed and hedged with suitable financial instruments according
to exchange rate expectations, which are constantly reviewed.
The net assets of the Group which are invested in subsidiaries and
affiliated companies outside the euro zone are generally not
hedged against currency risks. However, in specific circumstances,
DaimlerChrysler seeks to hedge the currency risk inherent in
certain of its long-term investments.
The following table shows values-at-risk figures for Daimler-
Chrysler’s 2003 and 2002 portfolio of derivative financial
instruments used to hedge the underlying currency exposure. We
have computed the average exposure based on an end-of-quarter
basis.
The average and period-end values-at-risk of derivative financial
instruments used to hedge exchange rate risk increased in 2003,
primarily as a result of higher foreign exchange rate volatilities and
an increased foreign exchange derivatives’ volume.
Due to fluctuations in the exchange rates especially of the US
dollar and other major currencies against the euro, Daimler-
Chrysler is exposed to foreign exchange-rate risks and resultant
transaction risks. These transaction risks primarily affect the
Mercedes Car Group segment, as almost half of its revenues are
generated in foreign currencies while most of its costs are incurred
in euros. The Commercial Vehicles segment is also exposed to
such transaction risks, but only to a minor degree because of its
worldwide production network. Chrysler Group’s transaction risks
are also low, as most of its revenues and costs are generated in
US dollars.
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102
In millions of €
Value-at-Risk
Average
for
2003
12.31.
2002
Average
for
2002
398 236 304381
12.31.
2003
1 Forward foreign exchange contracts, foreign exchange swap contracts, currency options.
Exchange rate sensitive derivate
financial instruments 1