DHL 2002 Annual Report Download - page 138

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Compared with the previous year, the open volume
of cross-currency swaps rose to €456 million. These are
used exclusively to hedge the exchange rate risk from long-
term refinancing in foreign currencies. The net fair value
amounts to €12 million. With the exception of the cross-
currency swaps, all instruments have a maximum of one
year to maturity. Each hedging instrument is allocated to a
hedged item.
Commodity price risk
Risks in our commodity management activities arise from
price movements for fuels, in particular diesel fuel and
kerosene, and directly impact our costs. Fuel worth €93 mil-
lion was hedged at the balance sheet date. The net positive
fair value was €11 million.
Interest rate risk and interest rate management
Interest rate risk arises from changes in market interest rates
for financial assets and financial liabilities. We study interest
rates regularly to quantify the risk profile. Deutsche Post
World Net uses interest rate derivatives, such as interest rate
swaps and options, to achieve a balanced mix of differing
interest rate terms in each portfolio – irrespective of the
liquidity tied up in individual financial contracts – and thus
limit the interest rate risk.
We use interest rate swaps to modify the fixed interest
rates of financial liabilities. Interest rate swaps are structured
so that Deutsche Post World Net pays a defined floating rate
of interest on a particular amount of notional principal,
and receives in return a certain fixed rate of interest on the
same amount of notional principal (or vice-versa). However,
principal payments are never exchanged, only the interest
payments. The maturities of swap contracts are matched to
the maturities of the hedged items.
If an interest rate swap contract increases the Company’s
fixed interest position because it is allocated to a floating rate
financial liability, the interest rate swap is classified as a cash
flow hedge under IAS 39. By contrast, if the interest rate swap
exchanges fixed interest payments for floating rate interest
payments, it is classified under IAS 39 as a fair value hedge.
To determine the fair value of an interest rate swap,
the expected future cash flows on both legs of the swap –
i.e. the fixed interest leg and the floating interest leg – are
discounted on the basis of the current yield curve. The
difference between the two values calculated produces the
net fair value of the interest rate swap. At December 31, 2002,
Deutsche Post World Net had entered into interest rate swaps
with a notional volume of €1,630 million. The net fair value
of this interest rate swap position at the reporting date was
€10.5 million.
Interest rate options are used to fix an interest rate
cap and floor, but still allow one of the counterparties to
take advantage of favorable interest rate movements. If a
cap is bought, the floating interest rate is compared with the
reference rate at the fixing date. If the interest rate exceeds the
cap strike rate of the option, the buyer receives a cash pay-
ment in the amount of the difference between the reference
interest rate and the cap strike rate from the option. Buying
a floor option has the opposite effect of a cap.
The interest rate options traded by Deutsche Post
World Net are caps that allow us to take advantage of favor-
able market developments to a certain extent. The interest
rate options are recognized as cash flow hedges under hedge
accounting rules.
The fair value of interest rate options is estimated on
the basis of option pricing models. At December 31, 2002,
Deutsche Post World Net had entered into interest rate
options with a notional volume of €150 million and a net
negative fair value of €3 million.
Financial Statements
Notes