Mercedes 2010 Annual Report Download - page 241

Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 237
The following table shows the period-end, high, low and average
value at risk figures for the 2010 and 2009 portfolio of the
de rivative financial instruments, which were entered into primarily
in connection with the operative vehicle businesses. The aver -
age exposure has been computed on an end-of-quarter basis.
The offsetting transactions underlying the derivative financial
instruments are not included in the following value at risk presen-
tation.
Period-end High Low
2010
Average
Period-end High Low
2009
Average
In millions of euros
Exchange rate risk
(from derivative
financial instruments)
558 590 346 507
177 692 165 337
The increase of the vehicle sales forecasts in the course of 2010
led to an increase of the foreign currency hedge volume in the
operative vehicle businesses. Because the stated foreign currency
value at risk refers to the portfolio of the derivative foreign
currency hedging contracts, the pronounced increase of the value
at risk in 2010 is mainly attributable to the increase of the
hedge volume.
The Group’s investments in liquid assets generally do not result
in currency risk, as this is governed by internal guidelines.
Transaction risks arising from payables in foreign currencies that
result from the Group’s refinancing on money and capital
markets are generally hedged against currency risks at the
time of refinancing in accordance with Daimler’s internal
guidelines. The Group uses appropriate derivative financial
instruments (e.g. cross currency interest rate swaps) to
hedge against currency risk.
Since currency risks arising from the Group’s refinancing in
foreign currencies and the respective hedging transactions
principally offset each other these financial instruments are not
included in the above presented value at risk calculation.
Effects of currency translation. For purposes of Daimler’s con-
solidated financial statements, the income and expenses and the
assets and liabilities of subsidiaries located outside the
euro zone are converted into euros. Therefore, period-to-period
changes in average exchange rates may cause translation
effects that have a significant impact on, for example, revenue,
segment results (earnings before interest and taxes – EBIT)
and net profit or loss of the Group. Unlike exchange rate trans-
action risk, exchange rate translation risk does not neces -
sarily affect future cash flows. The Group’s equity position reflects
changes in book values due to exchange rates. Daimler does
not hedge against exchange rate translation risk.
Interest rate risk. Daimler uses a variety of interest rate
sensitive financial instruments to manage the liquidity and cash
needs of its day-to-day operations. A substantial volume of
interest rate sensitive assets and liabilities results from the leas-
ing and sales financing business operated by the Daimler
Financial Services segment. The Daimler Financial Services
companies enter into transactions with customers that pri -
marily result in fixed-rate receivables. Daimler’s general policy
is to match funding in terms of maturities and interest rates,
where economically feasible. However, for a limited portion of
the receivables portfolio in selected and developed markets,
the Group does not match funding in terms of maturities in order
to take advantage of market opportunities. As a result, Daimler
is exposed to risks due to changes in interest rates. In this regard,
the Group does not create liquidity risks.
An asset/liability committee consisting of members of the Daimler
Financial Services segment, the Corporate Treasury department
and the Corporate Controlling department manages the interest
rate risk relating to Daimler’s leasing and financing activities
by setting targets for the interest rate risk position. The Treasury
Risk Management department and the local Daimler Financial
Services companies are jointly responsible for achieving these
targets. As a separate function, the Daimler Financial Services
Risk Management department monitors target achievement on a
monthly basis. In order to achieve the targeted interest rate risk
positions in terms of maturities and interest rate fixing periods,
Daimler generally uses derivative financial instruments, such
as interest rate swaps, forward rate agreements, swaptions and
caps and floors. Daimler assesses its interest rate risk position
by comparing assets and liabilities for corresponding maturities,
including the impact of the relevant derivative financial instru-
ments. The interest rate risk hedges represent primarily micro
hedges.