BMW 2002 Annual Report Download - page 94

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The fair values shown are computed using mar-
ket information available at the balance sheet date,
on the basis of prices quoted by the contract part-
ners or using appropriate measurement methods,
These interest rates were adjusted, where necessary, to take account of the credit quality and risk of the
underlying financial instrument.
e.g. discounted cash flow models. In the latter case,
amounts were discounted at 31 December 2002 on
the basis of the following interest rates:
Use and control of financial instruments
As an enterprise with worldwide operations, business
is conducted in a variety of currencies, from which
exchange rate risks arise. The BMW Groups opera-
tions are financed in various currencies, mainly by
the issue of bonds and medium term notes and
through bank loans. The BMW Groups financial
management system involves the use of all standard
types of financial instrument, e.g. short-term de-
posits, investments in variable and fixed-income se-
curities as well as securities funds. The BMW Group
is therefore exposed to risks resulting from changes
in interest rates, stock market prices and exchange
rates. Financial instruments are only used to hedge
underlying business transactions or forecasted
transactions.
Protection against such risks is provided at first
instance through natural hedging which arises when
the value of non-derivative financial instruments have
matching maturities and amounts (netting). Deriva-
tive financial instruments are used to reduce the risk
remaining after netting.
The scope of permitted transactions, responsi-
bilities, financial reporting procedures and control
mechanisms used for financial instruments are set
out in internal guidelines. These include, above all,
aclear separation of duties between trading and
processing. Exchange rate, interest rate and liquidity
risks of the BMW Group are managed at a corporate
level. At 31 December 2002, derivative financial in-
struments were in place to hedge exchange rate
risks, in particular for the currencies US Dollar, British
Pound and Japanese Yen.
Quantitative disclosures on financial instruments
Differences between the carrying amount and the
fair value of non-derivative financial instruments are
shown in the following table:
[36]Financial
instruments
in euro million 31.12.2002 31.12. 2001
Carrying Fair value Carrying Fair value
amount amount
Receivables from sales financing 19,493 20,014 17,398 17,712
Debt 26,262 26,414 25,665 25,327
in % Euro USD GBP JPY
Interest rate for six months 2.8 1.4 4.0 0.1
Interest rate for one year 2.8 1.5 4.0 0.1
Interest rate for five years 3.7 3.2 4.6 0.3
Interest rate for ten years 4.5 4.4 4.9 0.9