Yamaha 2011 Annual Report Download - page 78

Download and view the complete annual report

Please find page 78 of the 2011 Yamaha annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 94

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94

76 Yamaha Corporation
Regarding derivatives, the Group enters into foreign exchange forward contracts with netting arrangements and currency options (foreign
currency puts and yen call options) to reduce the foreign currency exchange risk arising from the receivables and payables denominated in foreign
currencies in normal export and import transactions.
Foreign exchange forward contracts are exposed to the foreign currency exchange risk. Since the Group only used foreign currency puts and
yen call options for currency options, their risk is only fees for these options and they are not exposed to the foreign currency risk.
Derivative transactions are accounted for by hedge accounting and information regarding the method of hedge accounting, hedging instru-
ments and hedged items, hedging policy, and the assessment of the effectiveness of hedging activities are described in the Note 1(n).
(b) Risk management for financial instruments
The Group has established a Group financial risk management policy, and the Company and its consolidated subsidiaries have prepared rules based
on this policy for the following risk:
(1) Credit risk (the risk that customers may default)
The Group has prepared policy for managing its credit exposure and trade receivables. In accordance with the rules, the Group monitors credit
exposure limits of each customer and organizes all trade receivables by customer, and confirms the outstanding balances by customers regu-
larly. For receivables that become past due, rules require taking steps to understand the causes and preparing a schedule for the recovery of this
exposure.
When the Group acquires held-to-maturity debt securities, in accordance with the policies for assets management, the Company and its
subsidiaries confer in advance and only acquire debt securities with high credit ratings. Accordingly, credit risk deriving from such debt securities is
insignificant.
To minimize the credit risk of the counterparty in derivative transactions, the Group enters into transactions only with financial institutions
which have a sound credit profile.
(2) Market risk (the risks arising from fluctuations in exchange rates, interest rates, and other indicators)
For trade receivables denominated in foreign currencies, the Group minimizes the foreign exchange risk by entering into forward foreign exchange
contracts and arranging for currency options, to the receivable position after netting by the payables denominated in foreign currencies, within the
limits of actual transactions. Also, the trade accounts payable denominated in foreign currencies are maintained within the amount of accounts
receivable denominated in foreign currencies at all times.
For short-term investment securities and investment securities, the Group periodically reviews the market value and the financial position of
the issuer; with which the company has business relationship. In addition, the Group continuously evaluates whether debt securities other than
those classified as held-to-maturity should be maintained.
In conducting derivative transactions, based on the policy stated in (1) above, the Company and its consolidated subsidiaries hold discussions,
establish internal rules for the management of derivatives, and then conduct and manage such transactions in accordance with the rules.
Derivative transactions of the Company and its subsidiaries are concentrated in the each accounting and finance department of these com-
panies. Internal rules set forth the roles of the each accounting and finance department, reports to be submitted to top management, communica-
tions to be sent to related departments, and maximum upper limit on position.
Monthly reports including the outstanding balance of derivative transactions and quantitative information such as market trends of foreign
exchange rate are submitted to top management.
(3) Liquidity risk (the risk that the Group may not be able to meet its obligations on the scheduled dates)
Based on the cash flow plans by the Company and its consolidated subsidiaries, the Group manages liquidity risk.
(4) Supplementary explanation of the estimated fair value of financial instruments
The estimated fair value of financial instruments is 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 the Note 22 are not indicative of the actual market risk involved in derivative transactions.