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purpose of making capital investments. The repayment dates of these debt extend up to 9 years and 2 months from the balance sheet date. These debt with variable interest rates is
exposed to interest rate fluctuation risk. However, to reduce such risk and fix interest expense for certain debt bearing interest at variable rates, the Group utilizes interest rate swap
transactions as a hedging instrument.
Regarding derivatives, the Group enters into forward foreign exchange contracts to reduce the foreign currency exchange risk arising from the receivables and payables
denominated in foreign currencies. The Group also enters into interest rate swap transactions to reduce fluctuation risk deriving from interest payable for short-term borrowings,
long-term borrowings and bonds bearing interest at variable rates.
Information regarding the method of hedge accounting, hedging instruments and hedged items, hedging policy, and the assessment of the effectiveness of hedging activities is
found in Note 29.
(3) Risk management for financial instruments
(a) Monitoring of credit risk (the risk that customers or counterparties may default)
In accordance with the internal policies of the Group for managing credit risk arising from receivables, each related division monitors credit worthiness of their main customers periodi-
cally, and monitors due dates and outstanding balances by individual customer. In addition, the Group is making efforts to identify and mitigate risks of bad debts from customers who
are having financial difficulties.
As of March 31, 2012, the carrying values of the financial assets represent the maximum credit risk exposures of the Group.
(b) Monitoring of market risks (the risks arising from fluctuations in foreign exchange rates, interest rates and others)
For trade receivables and payables denominated in foreign currencies, the Group identifies the foreign currency exchange risk for each currency on a monthly basis and enters into
forward foreign exchange contracts to hedge such risk. In order to mitigate the interest rate risk for loans payable and bonds bearing interest at variable rates, the Group may also
enter into interest rate swap transactions.
For marketable securities and investment securities, the Group periodically reviews the fair values of such financial instruments and the financial position of the issuers. In
addition, the Group continuously evaluates whether securities other than those classified as held-to-maturity should be maintained by taking into account their fair values and
relationships with the issuers.
In conducting derivative transactions, the division in charge of each derivative transaction follows the internal policies, which set forth delegation of authority and maximum
upper limit on positions. Monthly reports including actual transaction data are submitted to director in charge of treasury function and the Board of directors for their review.
(c) Monitoring of liquidity risk (the risk that the Group may not be able to meet its obligations on scheduled due dates)
Based on the report from each division, the Group prepares and updates its cash flow plans on a timely basis to manage liquidity risk.
(4) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, fair value is reasonably estimated. Since
various assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in different fair value. In addition, the notional amounts of
derivatives in Note 29 “Derivative financial instruments” are not necessarily indicative of the actual market risk involved in derivative transactions.
Estimated Fair Value of Financial Instruments
Carrying value of financial instruments on the consolidated balance sheets as of March 31, 2012 and 2011 and estimated fair value are shown in the following table. The following
table does not include financial instruments for which it is extremely difficult to determine the fair value (Please refer to Note 2)) below:
(As of March 31, 2012) Millions of yen
Carrying
value
Estimated
fair value Difference
Assets
1) Cash and deposits ............................................................................................................................................... ¥ 200,088 ¥ 200,088 ¥ —
2) Notes and accounts receivable ............................................................................................................................. 150,594 150,594 —
3) Investment securities ........................................................................................................................................... 45,771 45,771 —
Total Assets ............................................................................................................................................................ ¥ 396,453 ¥ 396,453 ¥ —
Liabilities
1) Notes and accounts payable ................................................................................................................................ ¥ 75,330 ¥ 75,330 ¥ —
2) Short-term borrowings ......................................................................................................................................... 63,092 63,092 —
3) Bonds, including current maturities ....................................................................................................................... 110,120 99,945 (10,175)
4) Long-term borrowings, including current maturities ............................................................................................... 469,214 415,488 (53,726)
Total Liabilities ........................................................................................................................................................ ¥ 717,756 ¥ 653,855 ¥ (63,901)
Derivatives* ................................................................................................................................................................ ¥ (1,922) ¥ (1,922) ¥ —
OLYMPUS 󱚈 Annual Report 2012 75