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Quantitative and Qualitative Disclosures About Market Risk
Ford Motor Company | 2010 Annual Report 71
Based on assumptions included in the analysis, sensitivity to a one-percentage point instantaneous increase in interest
rates at year-end 2010 was a decrease in Ford Credit's pre-tax cash flow over a twelve-month horizon of $22 million
compared to an increase of $27 million at year-end 2009. Correspondingly, the sensitivity to a one-percentage point
instantaneous decrease in interest rates at year-end 2010 was an increase in its pre-tax cash flow over a twelve-month
horizon of $22 million compared to a decrease of $27 million at year-end 2008.
While the sensitivity analysis presented is Ford Credit's best estimate of the impacts of the specified assumed interest
rate scenarios, its actual results could differ from those projected. The model Ford Credit uses to conduct this analysis is
heavily dependent on assumptions. Embedded in the model are assumptions regarding the reinvestment of maturing
asset principal, refinancing of maturing debt, replacement of maturing derivatives, exercise of options embedded in debt
and derivatives, and predicted repayment of retail installment sale and lease contracts ahead of contractual maturity.
Ford Credit's repayment projections ahead of contractual maturity are based on historical experience. If interest rates or
other factors change, Ford Credit's actual prepayment experience could be different than projected.
Foreign Currency Risk. Ford Credit's policy is to minimize exposure to changes in currency exchange rates. To meet
funding objectives, Ford Credit borrows in a variety of currencies, principally U.S. dollars and euros. Ford Credit faces
exposure to currency exchange rates if a mismatch exists between the currency of receivables and the currency of the debt
funding those receivables. When possible, receivables are funded with debt in the same currency, minimizing exposure to
exchange rate movements. When a different currency is used, Ford Credit may execute the following foreign currency
derivatives to convert substantially all of foreign currency debt obligations to the local country currency of the receivables:
• Foreign currency swap — an agreement to convert non-U.S. dollar long-term debt to U.S. dollar-denominated
payments or non-local market debt to local market debt for our international affiliates; or
• Foreign currency forward — an agreement to buy or sell an amount of funds in an agreed currency at a certain time
in the future for a certain price.
As a result of this policy, Ford Credit believes its market risk exposure relating to changes in currency exchange rates
is insignificant.
The fair value of Ford Credit's net derivative financial instruments (derivative assets less derivative liabilities) at
December 31, 2010 was $712 million, which was $29 million higher than December 31, 2009. For additional information
regarding our Financial Services sector derivatives, see Note 26 of the Notes to the Financial Statements.