BMW 2003 Annual Report Download - page 106

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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 partners
or using appropriate measurement methods, e.g.
These interest rates were adjusted, where necessary, to take account of the credit quality and risk of the
underlying financial instrument.
discounted cash flow models. In the latter case,
amounts were discounted at 31 December 2003 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 ex-
change rate risks arise. The BMW Group’s operations
are financed in various currencies, mainly by the
issue of bonds and medium term notes and through
bank loans. The BMW Group’s financial manage-
ment system involves the use of all standard types
of financial instrument, e.g. short-term deposits,
investments in variable and fixed-income securities
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 positions or forecasted trans-
actions.
Protection against such risks is provided at first
instance though natural hedging which arises when
the values of non-derivative financial instruments
have matching maturities and amounts (netting).
Derivative 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. This includes, 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 2003, derivative financial
instruments 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
The differences between the carrying amount and
the fair value of the material non-derivative financial
instruments are shown in the following table:
[37]Financial
instruments
in euro million 31.12.2003 31.12. 2002
Carrying Fair value Carrying Fair value
amount amount
Receivables from sales financing 21,950 22,199 19,493 20,014
Debt 27,449 27,410 26,262 26,414
ISO code EUR USD GBP JPY
in %
Interest rate for six months 2.1 1.2 4.2 0.1
Interest rate for one year 2.3 1.5 4.4 0.1
Interest rate for five years 3.7 3.7 5.0 0.7
Interest rate for ten years 4.5 4.8 5.1 1.4