Volvo 1999 Annual Report Download - page 79

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77
Total outstanding currency contracts
December 31, 1997 December 31, 1998 December 31, 1999
Notional Book Estimated Notional Book Estimated Notional Book Estimated
amount value fair value amount value fair value amount value fair value
Foreign exchange
contracts
– receivable
position 40,349 248 2,006 71,381 145 2,189 69,531 91 4,044
– payable position 84,591 (447) ( 3,762) 93,215 (491) (3,254) 107,509 (203) (5,628)
Foreign exchange swaps
– receivable
position 27,268 — 1,416 27,568 57 865 42,326 128 2,509
– payable position 26,045 — ( 1,604) 32,491 (384) (880) 39,819 – (2,885)
Options – purchased
– receivable
position 5,135 — 379 4,745 – 193 4,434 – 67
– payable position 4,156 — (147) 324 – (5) 392 – (4)
Options – written
– receivable
position 2,080 — 57 2,867 – 38 3 — 0
– payable position 4,274 — (61) 3,147 – (42) 3,415 — (49)
Total ( 199) (1,716) (673) (896) 16 (1,946)
The notional amount of the derivative contracts represents the gross contract amount outstanding. To determine the estimated fair value,
the major part of the outstanding contracts have been marked-to-market. Discounted cash flows have been used in some cases.
Interest-rate risks
Interest-rate risks relate to the risk that changes in
interest-rate levels affect the Group’s profit. By matching
fixed-interest periods of financial assets and liabilities,
Volvo reduces the effects of interest-rate changes.
Interest-rate swaps are used to change the interest-rate
periods of the Group’s financial assets and liabilities.
Exchange-rate swaps make it possible to borrow in
foreign currencies in different markets without incurring
currency risk.
Volvo also holds standardized futures and forward rate
agreements. The majority of these contracts are used to
secure interest levels for short-term borrowing or place-
ment.
Liquidity risks
Volvo ensures maintenance of a strong financial position
by continuously keeping a certain percentage of sales in
liquid assets. A proper balance between short- and long-
term borrowing, as well as the ability to borrow in the
form of credit facilities, are designed to ensure longer-
term financing.
Volvo Group outstanding interest related contracts
December 31, 1997 December 31, 1998 December 31, 1999
Notional Book Estimated Notional Book Estimated Notional Book Estimated
amount value fair value amount value fair value amount value fair value
Interest-rate swaps
– receivable
position 20,322 9 875 14,705 10 497 45,321 358 546
– payable position 28,142 (25) (1,760) 32,775 (240) (639) 55,115 (373) (576)
Forwards and futures
– receivable
position 165,186 – 435 240,245 – 1,781 231,907 – 99
– payable position 190,866 (17) (465) 262,968 (54) (1,855) 220,640 — (61)
Options purchased,
caps and floors
– receivable
position 521 – 2 – – – – – –
– payable position 159 – – – – – – – –
Options written,
caps and floors
– receivable
position – – – – – – – – –
– payable position 88 (44) (44) 420 (50) (50) – – –
Total (77) (957) (334) (266) (15) 8