BMW 2008 Annual Report Download - page 120

121 Group Financial Statements
in euro million 2008 2007
Balance at  January 438 178
Total changes during the year – 393 260
of which recognised in the income statement during the period under report – 627 – 260
Balance at  December 4 5 438
in euro million 31.12. 2008 31.12. 2007
Gains / losses on hedging instruments designated as part of a fair value hedge relationship 386 272
Gains / loss from hedged items – 405 – 271
– 19 1
Cash flow hedges
The effect of cash flow hedges on accumulated other equity was as follows:
During the period under report, an expense of euro  mil-
lion (: euro  million) was recognised in the income
statement to reflect the ineffective portion of cash flow
hedges due to over-hedging.
At  December , the BMW Group held derivative in-
struments with terms of up to  months (:  months)
to hedge currency risks attached to future transactions.
It is expected that euro  million of net gains, recognised
in equity at the end of the reporting period, will be recog-
nised in the income statement in .
At  December , the BMW Group held derivative in-
struments with terms of up to  months (:  months)
to hedge interest rate risks attached to future transactions.
It is expected that euro  million of net losses, recognised
in equity at the end of the reporting period, will be recog-
nised in the income statement in .
Cash flow hedges are used to hedge cash flows arising in
conjunction with the supply of vehicles to subsidiaries.
Fair value hedges
The following table shows gains and losses on hedging
instruments and hedged items which are deemed to be
part of a fair value hedge relationship:
The difference between the gains / losses on hedging
instruments and the result recognised on hedged items
represents the ineffective portion of fair value hedges.
Fair value hedges are mainly used to hedge bonds and
other financial liabilities.
Credit risk
Notwithstanding the existence of collateral accepted, the
carrying amounts of financial assets generally take account
of the maximum credit risk arising from the possibility that
the counterparties will not be able to fulfill their contractual
obligations. The maximum credit risk for irrevocable credit
commitments relating to the credit card business amounts
to euro , million (: euro , million). The equivalent
figure for dealer financing is euro , million (: euro
, million).
In the case of performance relationships underlying non-
derivative financial instruments, collateral will be required,
information on the credit-standing of the counterparty ob-
tained or historical data based on the existing business re-
lationship (i. e. payment patterns to date) reviewed in order
to minimise the credit risk, all depending on the nature and
amount of the exposure that the BMW Group is proposing
to enter into.
Within the financial services business, the financed items
(e. g. vehicles, equipment and property) in the retail cus-
tomer and dealer lines of business serve as first-ranking
collateral with a recoverable value. Security is also put up
by customers in the form of collateral asset pledges, asset
assignment and first-ranking mortgages, supplemented
where appropriate by warranties and guarantees. If an item
previously accepted as collateral is acquired, it undergoes
a multi-stage process of repossession and disposal in
accordance with the legal situation prevailing in the relevant
market. The assets involved are generally vehicles which
can be converted into cash at any time via the dealer organ-
isation.