Mercedes 2013 Annual Report Download - page 246

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32. Management of financial risks
General information on financial risks
As a result of its businesses and the global nature of operations,
Daimler is exposed in particular to market risks from changes
in foreign currency exchange rates and interest rates, while
commodity price risks arise from procurement. An equity price
risk results from investments in listed companies (including
Nissan, Renault, Kamaz and Tesla). In addition, the Group is
exposed to credit risks from its leasing and financing activities
and from its operating business (trade receivables). With
regard to the leasing and financing activities, credit risks arise
from operating lease contracts, finance lease contracts and
financing contracts. Furthermore, the Group is exposed to liquid-
ity 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
segregation of duties with regard to financial activities, settle-
ment, accounting and the related controlling. The guidelines
upon which the Group’s risk management processes for financial
risks 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 guide-
lines 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
uses derivative financial instruments exclusively for hedging
financial risks that arise from its commercial business or
refinancing activities. Without these derivative financial instru-
ments, 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31). Daimler regularly evaluates its finan-
cial risks with due consideration of changes in key economic
indicators and up-to-date market information.
Any market sensitive instruments including equity and debt
securities that the funds hold to finance pension and other
post-employment health care benefits are not included in the
following quantitative and qualitative analysis. See Note22
for additional information on Daimler’s pension and other post-
employment benefits.
Credit risk
Credit risk is the risk of economic loss arising from a counter-
party’s failure to repay or service debt in accordance with
the contractual 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
are generally subject to credit risk are equal to their carrying
amounts (without consideration of collateral, if available).
Table  F.89 shows the maximum risk positions.
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, banks and issuers
of securities are selected very carefully and diversified in
accordance with a limit system. In the past years, the limit
methodology was continuously enhanced to counteract
the increasing decline of the creditworthiness of the banking
sector. Additionally, under consideration of the European
sovereign debt crisis, liquid assets are increasingly also held
at financial institutions outside Europe with high creditwor-
thiness and as bonds issued by German federal states. At the
same time, the Group has increased the number of financial
institutions with which investments are made. In connection
with investment decisions, priority is placed on the borrower’s
very high creditworthiness and on balanced risk diversifica-
tion. The limits and their utilizations are reassessed 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, the principal portion of liquid
assets is held in investments with an external rating of “A”
or better.