Mercedes 2006 Annual Report Download - page 88

Due to exchange rate fluctuations, especially of the US dollar and
other major currencies against the euro, DaimlerChrysler is exposed
to exchange rate risks and resultant transaction risks. These
transaction risks primarily affect the Mercedes Car Group division,
as a significant portion of its revenues are generated in foreign
currencies while most of its costs are incurred in euros. The Truck
Group division is also exposed to such transaction risks, but only
to a minor degree because of its worldwide production network.
The Chrysler Group’s transaction risks are low, as most of its
revenues and costs are generated in US dollars.
Interest rate risks. DaimlerChrysler holds a variety of interest rate
sensitive financial instruments to manage its liquidity and the
cash needs of the day-to-day operations. A substantial volume
of interest rate sensitive assets and liabilities is related to the
leasing and sales financing business operated by DaimlerChrysler
Financial Services. The leasing and sales financing business
enters into transactions with customers which primarily result in
fixed-rate receivables. DaimlerChrysler’s general policy is to
match
funding in terms of maturities and interest rates. However,
for a limited portion of the receivables portfolio, the funding
does not match in terms of maturities and interest rates. As a
result, DaimlerChrysler is exposed to risks due to changes in
interest rates.
DaimlerChrysler coordinates the funding activities of the Industrial
Business and Financial Services at the Group level. It uses
interest rate derivative instruments, such as interest rate swaps,
forward rate agreements, swaptions, caps and floors, to achieve
the desired interest rate maturities and asset/liability structures
(asset and liability management).
The following table shows value-at-risk figures for DaimlerChrysler’s
2006 and 2005 portfolios of interest rate sensitive financial
instruments. We have computed the average exposure based on
an end-of-quarter basis.
In 2006, the average and the period-end values at risk of our
portfolio of interest-rate-sensitive financial instruments
decreased, primarily as a result of lower interest-rate volatilities
and a reduction in risk positions.
Equity price risks. DaimlerChrysler holds investments in marke-
table equity securities and equity derivatives. In accordance
with international banking standards, DaimlerChrysler does not
include investments in marketable equity securities that the
Group classifies as long-term investments in the equity price risk
assessment. Equity derivatives used to hedge the market price
risk of investments accounted for using the equity method are also
not included in this assessment. Changes in the fair market
value of these derivatives essentially offset changes in the fair
market value of the underlying investment. The remaining
equity price risk in 2006 and 2005 was not, and is currently not,
material to the Group. For this reason, DaimlerChrysler does
not present the value-at-risk figures for the remaining equity
price risk.
Value at risk
90894832
Average
for 2005
Dec. 31,
2005
Average
for 2006
Dec. 31,
2006
Amounts in millions of €
72
Interest-rate-sensitive
financial instruments