Volvo 2002 Annual Report Download - page 57

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Volvo Group’s outstanding derivative contracts pertaining to commercial exposure, December 31, 2002
The table shows forward contracts and option contracts to hedge future flows of commercial payments.
Other Fair
Currencies currencies value 2
Inflow Inflow Inflow
SEKM USD GBP EUR Net SEK
Due date 2003 amount 538 200 613 1,089
rate19.56 14.50 9.22
Due date 2004 amount 154 3 437 (409)
rate110.23 14.47 9.07
Due date 2005 amount 99 (3) – (316)
rate110.23 15.01 –
Total 791 200 1,050 364
of which, option contracts 87 – 391 (405)
Fair value of forward
contracts 2633 60 34 128 855
1Average forward contract rate.
2 Outstanding forward contracts valued to market rates.
Volvo Group’s net flow per currency Other
Currencies Currencies Total
Inflow Inflow Inflow
SEKM USD GBP EUR Net SEK
Net flow 2002 amount 735 369 1,057
rate 39.7287 14.5816 9.1596
Net flow SEK, 37,100 5,400 9,700 6,600 28,800
Hedged portion, % 473 54 58
3Average exchange rate during the financial year.
4Outstanding currency contracts, regarding commercial exposure due in 2003, percentage of net flow 2002.
Note 32Financial risks
The Volvo Group is exposed to various types of financial risks. The
Volvo Group Financial Risk Policies form the basis for each Group
company’s action program. Monitoring and control is conducted con-
tinuously 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 Treasury, which conducts its operations within
established risk mandates and limits.
Foreign exchange risks
Volvo’s currency risks are related to changes in contracted and pro-
jected flows of payments (commercial exposure), to payment flows
related to loans and investments (financial exposure), and to the
translation of assets and liabilities in foreign subsidiaries (equity
exposure). The objective of the Volvo Group Currency Policy is to
minimize the short-term impact of adverse exchange rate fluctu-
ations on the Volvo Group’s operating income, by hedging the
Group’s forecasted transaction exposure, including firm flows.
The objective is also to reduce the Group’s balance sheet expos-
ure to a minimum. Volvo Group Companies individually should not
assume any currency risk.
Commercial exposure
According to the Volvo Group Currency Policy, forecasted currency
flows representing firm exposure and forecasted exposure with a
pre-fixed price in local currency should be hedged. Volvo uses for-
ward exchange contracts and currency options to hedge these flows.
In accordance with the Group’s currency policy, between 50% and
80% of the net flow in each currency is hedged for the coming
6months, 30% to 60% for months 7 through 12 and firm flows
beyond 12 months should normally be fully hedged. The notional
value of all forward and option contracts as of December 31, 2002
was SEK 20.9 billion (12.1; 16.7).