Volvo 1998 Annual Report Download - page 74

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72
NOTE S
Other cur-
Inflow currencies Outflow currencies rencies Total
Net
SEK M USD GBP ITL JPY DEM BEF SEK
Due date 1999 amount 2,434 497 757,690 20,085 (1,109) (17,298) 1,232
rate17.69 12.43 0.0045 0.0697 4.61 0.2163
Due date 2000 amount 1,759 367 191,150 19,286 (731) (8,498) 823
rate17.84 12.62 0.0047 0.0705 4.71 0.2244
Due date 2001 amount 761 154 8,400 14,700 (309) 0 793
rate 17.98 12.75 0.0047 0.0733 4.94 0.0000
Total 4,954 1,018 957,240 54,071 (2,149) (25,796) 2,848
of which options contracts 345 0 0 9,974 (183) 0 0
Translated to
actual value, SEK238,619 12,713 4,330 4,038 (10,172) (5,562) 3,141 47,107
Translated to SEK at year-end
exchange rates,
December 31, 1998 39,954 13,763 4,690 3,785 (10,378) (6,039) 2,848 48,623
Difference between
actual value and
year-end exchange rates (1,335) (1,050) (360) 253 206 477 293 (1,516)
Year-end exchange rates,
December 31, 1998 8.07 13.52 0.0049 0.0700 4.83 0.2341
1 Average contract rate 2 Average forward contract rate and, for options, the most
favorable of the year-end rate and contract rate.
Volvo Group’s net flow per currency
Other cur-
Inflow currencies Outflow currencies rencies Total
Net
SEK M USD GBP ITL JPY DEM BEF SEK
Net flow 1998 amount 3,044 591 999,975 13,302 (1,877) (28,630)
rate37,9676 13,2215 0,0046 0,0610 4,5317 0,2196
Net flow SEK, 324,253 7,814 4,600 811 (8,506) (6,287) (1,232) 21,453
Hedged portion, % 480 84 76 151 59 60
In the course of its operations the Volvo Group is ex-
posed to various types of financial risks. Group-wide pol-
icies form the basis for each Group company’s action pro-
gram. Monitoring and control is conducted continuously
in each company as well as centrally. Most of the Volvo
Group’s financial transactions are carried out through
Volvo’s in-house bank, Volvo Group Finance, which con-
ducts its operations within established risk mandates
and limits.
Foreign exchange risks
Volvo’s currency risks are related to changes in contracted
and projected flows of payments (commercial exposure),
to payment flows related to loans and investments
(financial exposure), and to the revaluation of assets and
liabilities in foreign subsidiaries (equity exposure). The
objective of Volvo’s foreign exchange risk management
is to reduce the impact of foreign exchange movements
on the Group’s income and financial position.
Commercial exposure
Volvo uses forward exchange contracts and currency
options to hedge the value of future payment flows.
Contracts related to hedging of anticipated sales and
purchases of foreign currency normally do not exceed
36 months. In accordance with the Group’s currency
policy, between 40% and 80% of the net flow in each
currency is hedged for the coming 12 months, 20% to
60% for months 13 through 24 and 0% to 40% for
months 25 through 36. The value of all forward and
options contracts as of December 31, 1998 was SEK
47.1 billion (51.9; 40.2).
3 Average exchange rate during the financial year. 4 Outstanding currency contracts, regarding commercial expo-
sure due in 1999, percentage of net flow 1998.
Volvo Group’s outstanding currency contracts pertaining to commercial exposure, December 31, 1998
The table shows contracts hedging
future flows of commercial payments.
Financial exposure
Group companies operate in local currencies. Through
loans and investments being mainly in the local currency,
financial exposure is avoided. In companies which have
loans and investments in foreign currencies, hedging is
carried out in accordance with Volvo’s financial policy,
which means a limited risk-taking.
Financial risks Note 30