Merck 2014 Annual Report Download - page 238

233CONSOLIDATED FINANCIAL STATEMENTS → Notes to the Group accounts
OTHER DISCLOSURES
(55) DERIVATIVE FINANCIAL INSTRUMENTS
The Group uses derivative financial instruments (hereinafter “de-
rivatives”) exclusively to hedge and reduce risks from currency
and interest rate positions. The Group uses marketable forward
exchange contracts, options and interest rate swaps as hedging
instruments. Depending on the nature of the hedged item, chang-
es in the fair values of derivatives are recorded in the income
statement either in the operating result or in the financial result.
The strategy to hedge interest rate and foreign exchange rate fluc-
tuations arising from forecast transactions and transactions
already recognized in the balance sheet is set by a Group risk
committee, which meets on a regular basis. Extensive guidelines
regulate the use of derivatives. There is a ban on speculation.
Derivative transactions are subject to continuous risk manage-
ment procedures. Trading, settlement and control functions are
strictly separated. Derivatives are only entered into with banks
that have a good credit rating. Related default risks are continu-
ously monitored.
The following derivatives were held as of the balance sheet date:
Nominal volume Fair value
€ million Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
Cash flow hedge 10,041.8 4,073.5 313.4 82.2
Interest 650.0 650.0 – 99.9 – 39.9
Currency 9,391.8 3,423.5 413.3 122.1
Fair value hedge – – – –
Interest – – – –
Currency – – – –
No hedge accounting 3,682.6 2,042.5 9.4 5.3
Interest – – – –
Currency 3,682.6 2,042.5 9.4 5.3
13,724.4 6,116.0 322.8 87.5
The nominal volume corresponds to the total of all nominal values
of currency hedges (translated at the closing rate into euros) as
well as all the nominal values of interest rate hedges. The fair
value results from the actuarial valuation of the derivatives on the
basis of quoted prices or current market data as of the balance
sheet date provided by a recognized information service and the
application of a discount for own credit risk or counterparty credit
risk. Any offsetting effects from hedged items are not taken into
account in the derivatives’ fair value. The maturities of the deriv-
a
tives (nominal volume) were as follows as of the balance sheet
date:
€ million
Remaining maturity
less than 1 year
Remaining maturity
more than 1 year
Total
Dec. 31, 2014
Remaining maturity
less than 1 year
Remaining maturity
more than 1 year
Total
Dec. 31, 2013
Foreign exchange contracts 11,942.6 433.9 12,376.5 3,763.2 1,244.9 5,008.1
Currency options 653.1 44.8 697.9 297.2 160.7 457.9
Interest rate swaps 100.0 550.0 650.0 – 650.0 650.0
12,695.7 1,028.7 13,724.4 4,060.4 2,055.6 6,116.0