Porsche 2009 Annual Report Download - page 235

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4.4.1.5 Market risk in the financial services division
Exchange rate risk in the financial services division is mainly attributable to assets that are
not denominated in the functional currency and from refinancing within operating activities. Interest
rate risk relates to refinancing without matching maturities and the varying interest rate elasticity of
individual asset and liability items. The risks were limited in the comparative period by the use of
currency and interest rate hedges.
Regarding fair value hedging on a portfolio basis, fixed-rate receivables and liabilities were
hedged against changes in the risk-free base rate. The assets and liabilities included in this hedging
strategy were measured at fair value for the remaining term. The resulting effects on the income
statement were offset by the corresponding gains and losses from the interest rate hedging instru-
ments.
The value at risk was determined using a historical simulation based on the last 250 trad-
ing days and with a retention period of 10 days as well as a confidence level of 99% and the poten-
tial change in financial instruments if interest and exchange rates vary.
As of 31 July 2009, the value at risk for interest rate risk was €46 million and €99 million
for foreign currency risk.
The entire value at risk for interest rate and foreign currency risk in the financial services
division was €108 million.
5 Methods for monitoring hedge effectiveness
Hedge accounting is not used in continuing operations. For this reason, the qualitative pre-
sentation below of the methods used to monitor effectiveness refers exclusively to the approach
used in the discontinued operations before deconsolidation.
At the inception of a hedge relationship, the discontinued operations formally designated
and documented the hedge relationship to which hedge accounting was to be applied as well as the
risk management objective and strategy for undertaking the hedge. The documentation included
identification of the hedging instrument, the hedged item or transaction, the nature of the risk being
hedged and how the entity would assess the hedging instrument’s effectiveness in offsetting the
exposure to changes in the hedged item’s fair value or cash flows. The effectiveness of hedges was
permanently monitored both prospectively and retrospectively. Both the critical terms match method
and statistical methods in the form of regression analysis were used to prospectively measure
effectiveness. Retrospective analysis of effectiveness used effectiveness tests in the form of the
dollar offset method or a regression analysis.