Ford 2010 Annual Report Download - page 169

Notes to the Financial Statements
Ford Motor Company | 2010 Annual Report 167
NOTE 26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
December 31, 2009
December 31, 2009December 31, 2009
December 31, 2009
Fair Value of Fair Value ofFair Value of
Fair Value of
Fair Value of Fair Value ofFair Value of
Fair Value of
Notionals
NotionalsNotionals
Notionals
Assets
AssetsAssets
Assets
Liabilities LiabilitiesLiabilities
Liabilities
Automotive Sector
Automotive SectorAutomotive Sector
Automotive Sector
Cash flow hedges:
Foreign exchange contracts................................................................
................................
$ 118 $ — $ 5
Derivatives not designated as hedging instruments:
Foreign exchange contracts................................................................
................................
4,255 59 80
Commodity contracts ................................................................
................................
980 15 54
Other – warrants................................................................................................
................................
12 2 —
Total derivatives not designated as hedging instruments................................
................................
5,247 76 134
Total Automotive sector derivative instruments ................................
................................
$ 5,365 $ 76 $ 139
Financial Services Sector
Financial Services SectorFinancial Services Sector
Financial Services Sector
Fair value hedges:
Interest rate contracts ................................................................
................................
$ 6,309 $ 385 $ —
Derivatives not designated as hedging instruments:
Interest rate contracts ................................................................
................................
68,527 1,269 846
Foreign exchange contracts................................................................
................................
4,386 22 46
Cross-currency interest rate swap contracts ................................
................................
3,873 203 282
Total derivatives not designated as hedging instruments................................
................................
76,786 1,494 1,174
Total Financial Services sector derivative instruments................................
................................
$ 83,095 $ 1,879 $ 1,174
On our consolidated balance sheet, Automotive and Financial Services sectors report derivative assets in Other
assets. Derivative liabilities are reported in Payables for the Automotive sector and in Accrued liabilities and deferred
revenue for Financial Services sector.
The notional amounts of the derivative financial instruments do not 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, 2010 was about $1 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. Our adjustment for non-
performance risk is relative to a measure based on an unadjusted inter-bank deposit rate (e.g., LIBOR). For our
Automotive sector, at December 31, 2010 and 2009, our adjustment reduced derivative assets and derivative liabilities by
less than $1 million, respectively. For our Financial Services sector, at December 31, 2010 and 2009, our adjustment
reduced derivative assets by $10 and $6 million, respectively, and reduced derivative liabilities by $4 and $13 million,
respectively. See Note 4 for more detail on valuation methodologies.
We post cash collateral with certain counterparties based on our net position with regard to foreign currency and
commodity derivative contracts. We posted $11 and $64 million as of December 31, 2010 and December 31, 2009,
respectively, which is reported in Other assets on our consolidated balance sheet.