Mercedes 2006 Annual Report Download - page 214

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DaimlerChrysler is also exposed to market price risks associated
with the purchase of commodities. To a minor degree, Daimler-
Chrysler uses derivative instruments to reduce market price risks,
primarily with respect to precious metals. The risk resulting
from derivative commodity instruments is not significant to the
Group and thus is not included in the following discussion.
The contract volumes at December 31 of derivative financial
instruments used for hedging currency- and interest rate risks are
shown in the table below. The contract or notional amounts
shown do not always represent amounts exchanged by the parties
and are not necessarily a measure for the exposure of Daimler-
Chrysler through its use of derivatives.
b) Fair value of financial instruments
The fair value of a financial instrument is the price at which one
party would assume the rights and/or duties of another
party pertaining to such instrument. The fair values of financial
instruments have been determined with reference to market
information available at the balance sheet date and the valuation
methodologies discussed below. Considering the variability
of their value-determining factors, the fair values presented herein
are only an indication of the amounts that the Group could
realize under current market conditions.
The carrying amounts and fair values of the Group’s financial
instruments are as follows:
Derivative instruments representing assets are included in
other assets (see Note 18) at fair value, while derivative
instruments representing liabilities are included in other accrued
liabilities (see Note 24b) at fair value.
The methods and assumptions used to determine the fair values
of financial instruments are summarized below:
Financial assets and securities. The fair values of securities are
determined either using quoted market prices or valuation
models that use market data. The Group has certain equity
investments which are not presented in the table since
they are not publicly traded and determination of fair values
is impracticable. The investment in EADS is included in
“financial assets.” The derivatives related to EADS shares are
included in “equity contracts” (see Note 3).
Receivables from financial services. The carrying amounts
of variable rate receivables from financial services approximate
their fair values since the contract rates of those receivables
approximate current market rates. The fair values of fixed rate
receivables from financial services were determined by
discounting expected cash flows, using the current interest rates
at which comparable loans with identical maturities could be
taken out as of December 31, 2006 and 2005.
At December 31,
2005
2006
22,662
45,224
25,082
42,407
Currency contracts
Interest rate contracts
(in millions of €)
At December 31, 2005
Fair value
At December 31, 2006
Fair value
Carrying
amount
Carrying
amount
8,186
52,042
5,985
7,136
79,258
513
1,297
434
202
207
89
4,747
52,334
5,985
7,136
78,518
513
1,297
434
202
207
89
9,944
61,246
4,936
7,711
82,129
181
546
73
646
867
209
4,989
61,101
4,936
7,711
80,932
181
546
73
646
867
209
Financial instruments
(other than derivative
instruments):
Assets:
Financial assets
Receivables from
financial services
Securities
Cash and cash
equivalents
Liabilities:
Financial liabilities
Derivative instruments:
Assets:
Currency contracts
Interest rate contracts
Equity contracts
Liabilities:
Currency contracts
Interest rate contracts
Equity contracts
(in millions of €)