Porsche 2004 Annual Report Download - page 147

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143
(27) Financial Instruments
Hedging strategy
Owing to the international activities in the vehicles and financial services segment, changes in
interest rates and exchange rates affect the net assets, financial position and results of operations
of the Porsche Group. The risks result from foreign currency transactions in the course of
ordinary operations, from financing and from investing activities. It is the objective of the Group’s
central treasury department to manage and thus minimize these financial risks for the continued
existence and earnings power by concluding hedges for the Group. Guidelines are issued to govern
discretionary decisions and internal controls and avoid a concentration of risk. The nature and
volume of hedging transactions is generally chosen with regard to the underlying contract. Hedging
transactions may only be concluded to hedge existing underlyings or planned transactions. Only
approved financial instruments may be entered into with approved counterparties.
Currency risk
Currency risks from current receivables, liabilities and debts as well as from highly likely future
transactions are generally hedged with forward exchange contracts, currency options or combined
options.
Hedges for value fluctuations in future cash flows from anticipated highly likely transactions mainly
relate to planned sales in foreign currency. As of July 31, 2005, currency hedges are in place in
particular for the major currencies US dollar, pound sterling and Japanese yen.
Interest rate risk
The Porsche Group has issued fixed-interest bonds. The interest rate risks arising in this regard
are hedged by interest derivatives.
Credit risk
The credit risk of financial assets is taken into account through adequate valuation allowances
considering existing collateral. Various hedging measures are taken to reduce the credit risk for
primary financial instruments, such as requesting collateral or guarantees and credit ratings
based on information from credit rating agencies and historical data.
Hedging transactions are only entered into with first-rate banks on the basis of uniform guidelines
and are monitored accordingly.
Measurement of financial instruments
The market value of financial instruments is determined by reference to stock market listings,
reference prices or recognized calculation models.
The following term structure of interest rates was used were appropriate:
EUR USD GBP
Interest rate for six months 2.149% 3.924 % 4.545 %
Interest rate for one year 2.196% 4.163 % 4.484%
Interest rate for five years 2.793% 4.520 % 4.535 %
Interest rate for ten years 3.340 % 4.658 % 4.620%
Interest rate for fifteen years 3.620% 4.810 % 4.580%
Other Notes