Mercedes 2010 Annual Report Download - page 235

Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 231
31. Risk management
Generalinformationonfinancialrisk
As a result of its businesses and the global nature of opera-
tions, Daimler is exposed to market risks from changes in foreign
currency exchange rates, interest rates and equity prices,
while commodity price risks arise from procurement. In addition,
the Group is exposed to credit risks mainly from its lease and
financing activities and from trade receivables. With regard to the
lease and financing activities credit risks arise from operating
lease contracts, finance lease contracts and financing contracts.
Furthermore, the Group is exposed to liquidity risks relating
to its credit and market risks or a deterioration of its operating
business or financial market disturbances. If these financial
risks materialize, they could adversely affect Daimler’s financial
position, cash flows and profitability.
Daimler has established guidelines for risk controlling procedures
and for the use of financial instruments, including a clear segre-
gation of duties with regard to operating financial activities, settle-
ment, accounting and the respective controlling. The guidelines
upon which the Group’s risk management processes are based are
designed to identify and analyze these risks throughout the
Group, to set appropriate risk limits and controls and to monitor
the risks by means of reliable and up-to-date administrative
and information systems. The guidelines and systems are regularly
reviewed and adjusted to changes in markets and products.
The Group manages and monitors these risks primarily through
its operating and financing activities and, if required, through the
use of derivative financial instruments. Daimler does not use
derivative financial instruments for purposes other than risk man-
agement. Without these derivative financial instruments,
the Group would be exposed to higher financial risks (additional
information on financial instruments and especially on the
nominal values of the derivative financial instruments used is
included in Note30). Daimler regularly evaluates its financial
risks with due consideration of changes in key economic indica-
tors and up-to-date market information.
Any market sensitive instruments, including equity and debt se-
curities, that the funds hold to finance pension and other
post-employment benefit obligations are not included in this
quantitative and qualitative analysis. Please refer to Note22
for additional information regarding Daimler’s pension plans and
funds.
Creditrisk
Credit risk is the risk of economic loss arising from a counter-
party’s failure to repay or service debt according to the contrac-
tual terms. Credit risk encompasses both the direct risk of
default and the risk of a deterioration of creditworthiness as
well as concentration risks.
The maximum risk positions of financial assets which generally
are subject to credit risk are equal to their carrying amounts and
are shown in the following table:
See also
Note
Maximum
risk position
2010
Maximum
risk position
2009
In millions of euros
Liquid assets 12,999 16,142
Receivables from financial
services
14
41,030
38,478
Trade receivables 19 7,192 5,285
Derivative financial instruments
used in hedge accounting
(assets only)
16
816
1,074
Derivative financial instruments
not used in hedge accounting
(assets only)
16
731
1,218
Loan commitments 29 1,910 1,587
Other receivables and financial assets 16 1,695 1,759
Liquid assets. Liquid assets consist of cash and cash equiva-
lents and marketable debt securities classified as available for
sale. With the investment of liquid assets, the banks and issuers
of securities are selected very carefully and diversified in accor-
dance with a limit system. In connection with the financial mar-
ket crisis, the limit system was adjusted and the Group reduced
most of the limits. The limits and their utilizations are reas-
sessed continuously. In this assessment Daimler also considers
the credit risk assessment of its counterparties by the capital
markets. In line with the Group’s risk policy, most liquid assets
are held in investments with an external rating of “A” or better.