Ford 2009 Annual Report Download - page 158
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Notes to the Financial Statements
156 Ford Motor Company | 2009 Annual Report
NOTE 26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
In our consolidated balance sheet, we report derivative assets in Other assets, and derivative liabilities in Payables
and Accrued liabilities and deferred revenue for Automotive and Financial Services sectors, respectively.
The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the
parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts
exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest
rates, foreign currency exchange rates or commodity volumes and prices.
Counterparty Risk and Collateral
Use of derivatives exposes us to the risk that a counterparty may default on a derivative contract. We establish
exposure limits for each counterparty to minimize this risk and provide counterparty diversification. Substantially all of our
derivative exposures are with counterparties that have long-term credit ratings of single-A or better. The aggregate fair
value of derivative instruments in asset positions on December 31, 2009 was about $2 billion, representing the maximum
loss that we would recognize at that date if all counterparties failed to perform as contracted. We enter into master
agreements with counterparties that generally allow for netting of certain exposures; therefore, the actual loss we would
recognize if all counterparties failed to perform as contracted would be significantly lower.
We include an adjustment for non-performance risk in the fair value of derivative instruments. At December 31, 2009,
our adjustment for non-performance risk relative to a measure based on an unadjusted inter-bank deposit rate
(e.g., LIBOR) reduced derivative assets by $0 and $6 million for Automotive and Financial Services sectors, respectively,
and reduced derivative liabilities by $1 million and $13 million for Automotive and Financial Services sectors, respectively.
See Note 4 for more detail on valuation methodologies.
In the third quarter of 2009, we began posting cash collateral with certain counterparties based on our net position with
regard to foreign currency and commodity derivative contracts. As of December 31, 2009, we posted $64 million in cash
collateral related to derivative instruments, which is included in restricted cash and reported in Other assets on our
consolidated balance sheet.