Porsche 2010 Annual Report Download - page 101

Risks arising from financial instruments
In its business activities the group is ex-
posed to risks arising from the primary or derivative
financial instruments used. The primary aim of using
financial instruments is to limit the financial risk
position for the group’s ability to continue as a going
concern and its earnings power. In order to manage
these risks, the group has set out guidelines to en-
sure that transactions are concluded only in financial
instruments approved in advance, only with approved
counterparties and on the admissible scale. Without
using such instruments, the group would be exposed
to higher financial risks.
The financial instruments entered into for
hedging purposes lead to accounting risks in addition
to counterparty default risks. This risk of effects on
the presentation of results of operations in the income
statement is limited by way of hedge accounting.
Default risks in receivables are reduced by
means of a strict receivables management system.
Channeling excess liquidity into investments
exposes the group to further counterparty risks.
Partial or complete failure by a counterparty to per-
form its obligation to pay interest and repay principal
would have a negative impact on liquidity and accord-
ingly on the net assets, financial position and results
of operations. The group has set out clearly defined
guidelines to manage these default risks and to
ensure that only approved financial instruments are
entered into with approved counterparties.
Interest rate risks arising from the refinanc-
ing of the financial services business of Porsche
Financial Services are fully hedged through the use
of suitable derivatives (e.g., interest swaps). In the
case of fixed-rate bonds of the Porsche Zwischen-
holding GmbH group, there is no interest risk. For
the syndicated lines of credit that fall due at the end
of 2011 or optionally at the end of 2012, variable
interest, which is hedged against increasing short-
term interest, is paid on the basis of a one-to six-
month Euribor.
The currency risk from future sales revenue
denominated in foreign currencies is hedged through
the use of exchange rate hedging instruments for a
period of up to four years. The main hedging instru-
ments used are forward exchange transactions,
currency options, repayment of foreign currency
liabilities, and currency swaps. The volume of ex-
change rate hedges is determined on the basis of
the planned sales figures in the respective foreign
currency. The counterparties for the exchange rate
hedges are major international financing partners.
Cooperation is subject to standard regulations and
continuous monitoring.
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