Mercedes 2009 Annual Report Download - page 243

Consolidated Financial Statements |Notes to Consolidated Financial Statements |239
The following table shows the period-end, high, low and average
value at risk figures for the 2009 and 2008 portfolio of these
derivative financial instruments. The average exposure has been
computed on an end-of-quarter basis. The offsetting transactions
underlying the derivative financial instruments are not included in
the following value at risk presentation.
The average value at risk of the financial instruments used to
hedge exchange rate risks decreased in 2009 as a result of lower
exchange rate volatilities.
Effects of currency translation. For purposes of Daimler’s consol-
idated financial statements, the income and expenses and the
assets and liabilities of subsidiaries located outside the euro zone
are converted into euro. Therefore, period-to-period changes
in average exchange rates may cause translation effects that
have a significant impact on, for example, revenue, segment
results (earnings before interest and taxes - EBIT) and net profit
or loss of the Group. Unlike exchange rate transaction risk,
exchange rate translation risk does not necessarily affect future
cash flows. The Group’s equity position reflects changes in
book values due to exchange rates. Daimler does not hedge
against exchange rate translation risk.
In 2009, 2008 and 2007, currency effects negatively affected our
operating results.
Interest rate risk. Daimler uses a variety of interest rate sensitive
financial instruments to manage the liquidity and cash needs
of its day-to-day operations. A substantial volume of interest rate
sensitive assets and liabilities results from the leasing and
sales financing business which is operated by the Daimler Financial
Services segment. The Daimler Financial Services companies
enter into transactions with customers that primarily result in
fixed-rate receivables. Daimler’s general policy is to match
funding in terms of maturities and interest rates, where economi-
cally feasible. However, for a limited portion of the receivables
portfolio in selected and developed markets, the Group does not
match funding in terms of maturities in order to take advantage
of market opportunities. As a result, Daimler is exposed to risks
due to changes in interest rates. In this regard, the Group does
not create liquidity risks since finance and leasing contracts are
funded with matching maturities.
An asset/liability committee consisting of members of the Daimler
Financial Services segment, the Corporate Treasury department
and the Corporate Controlling department manages the interest
rate risk relating to Daimler’s leasing and financing activities
by setting targets for the interest rate risk position. The Treasury
Risk Management department and the local Daimler Financial
Services companies are jointly responsible for achieving these
targets. As a separate function, the Daimler Financial Services
Risk Management department monitors target achievement on a
monthly basis. In order to achieve the targeted interest rate risk
positions in terms of maturities and interest rate fixing periods,
Daimler generally uses derivative financial instruments, such
as interest rate swaps, forward rate agreements, swaptions and
caps and floors. Daimler assesses its interest rate risk position
by comparing assets and liabilities for corresponding maturities,
including the impact of the relevant derivative financial instru-
ments.
Derivative financial instruments are also used in conjunction with
the refinancing related to the industrial business. Daimler
coordinates the funding activities of the industrial and financial
services businesses at the Group level.
2008
Average
LowHighPeriod-end
2009
AverageLowHighPeriod-end
692
177 165 337 572 572 253 380
in millions of €
Exchange rate risk
(from derivative financial instruments)