Mitsubishi 2015 Annual Report Download - page 59

15. Financial Instruments
For the years ended March 31, 2015 and 2014
Overview of financial instruments
(a) Our policy to manage financial instruments
Capital management policy of MMC group (the “Group”) is to
limit its investments to low risk financial products and to obtain its
required funds mainly through bank borrowings. We use derivative
instruments to hedge interest rate, foreign currency and similar
risks, and we do not enter into any speculative transactions.
(b) Nature and risks of financial instruments and our risk
management structure
Trade receivables, which include notes receivable and accounts
receivable, are exposed to the credit risk of our customers. To man-
age this risk, in accordance with the Group’s credit control rules,
each group company monitors the financial condition of its major
customers, as well as managing the maturity profiles and outstand-
ing balances of the receivables on a customer by customer basis.
Trade receivables denominated in foreign currency are exposed
to foreign currency risk. In principle, forward foreign exchange
contracts are used to hedge the net position after offsetting foreign
currency denominated payables.
Some investment securities are exposed to the risk of market
price fluctuation. However, such securities are composed of
mainly the stocks of companies with which the Group has busi-
ness relationships.
Trade payables, which include notes payable and accounts
payable, and Electronically recorded obligations are mostly
expected to be settled within one year. While trade payables
include certain payables denominated in foreign currencies, in
principle these are managed by netting against foreign currency
denominated receivables.
Floating rate bank borrowings are exposed to interest rate risk.
For some of our long-term bank borrowings, derivative transac-
tions (interest rate swaps) are used as hedging instruments on an
individual loan contract basis to hedge the interest payable fluctua-
tion risk. Such transactions meet the criteria of special accounting
provisions for interest rate swaps, and therefore hedge effectiveness
assessment is not required.
Certain intercompany loans are exposed to foreign currency risk,
however derivative transactions are used as hedging instruments for
some of these loans.
In order to mitigate counterparty risks, the Group enters into
derivative transactions only with highly rated financial institutions.
Trade payables and bank borrowings are exposed to liquidity
risk. Each group company manages these risks, by preparing cash
flow projections and other similar tools.
(c) Supplementary information about the fair value of
financial instruments
The notional amount with respect to the derivative transactions
presented in “Fair value of financial instruments” does not
represent the amount of market risk associated with the relevant
derivative transactions.
Fair value of financial instruments
The carrying amount, fair value, and the difference between the car-
rying amount and the fair value of the financial instruments at March
31, 2015 and 2014 were as follows. These financial instruments do
not include any financial instrument for which it is extremely difficult
to reasonably measure fair value. (Refer to Note 15.2)
(In millions of yen)
March 31, 2015
Carrying
amount Fair value Difference
Cash and bank deposits ¥440,272 ¥440,272 ¥ —
Notes and accounts
receivable–trade 184,653 184,653 —
Finance receivables 78,149
Allowance for doubtful
accounts (*1) (2,414)
75,734 76,350 615
Investment (*2) 21,151 21,151 —
Total assets ¥721,812 ¥722,427 ¥615
Notes and accounts
payable–trade ¥353,862 ¥353,862 ¥ —
Electronically recorded
obligations 21,018 21,018 —
Short-term loans payable 90,907 90,907 —
Long-term loans payable 53,557 53,539 (17)
Accounts payable – other and
accrued expenses (*3) 122,128 122,128 —
Total liabilities ¥641,474 ¥641,456 ¥ (17)
Derivative transactions (*4) 50 50 —
MITSUBISHI MOTORS CORPORATION
Annual Report 2015 57