Ford 2009 Annual Report Download - page 75

Quantitative and Qualitative Disclosures About Market Risk
Ford Motor Company | 2009 Annual Report 73
As of December 31, 2009, in the aggregate Ford Credit's assets re-price faster than its debt (including the derivative
instruments economically hedging the debt). Other things being equal, this means that during a period of rising interest
rates, the interest rates earned on its assets will increase more rapidly than the interest rates paid on its debt, thereby
initially increasing Ford Credit's pre-tax cash flow. Correspondingly, during a period of falling interest rates, Ford Credit
would expect its pre-tax cash flow to initially decrease.
To provide a quantitative measure of the sensitivity of its pre-tax cash flow to changes in interest rates, Ford Credit
uses interest rate scenarios that assume a hypothetical, instantaneous increase or decrease in interest rates of one
percentage point across all maturities (a "parallel shift"), as well as a base case that assumes that interest rates remain
constant at existing levels. In reality, interest rate changes are rarely instantaneous or parallel and rates could move more
or less than the one percentage point assumed in Ford Credit's analysis. As a result, the actual impact to pre-tax cash
flow could be higher or lower than the results detailed in the table below. These interest rate scenarios are purely
hypothetical and do not represent Ford Credit's view of future interest rate movements.
Pre-tax cash flow sensitivity as of year-end 2009 and 2008 was as follows (in millions):


3UH
3UH3UH
3UH
7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH 7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH
7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH
SHUFHQWDJHSRLQWLQVWDQWDQHRXV
SHUFHQWDJHSRLQWLQVWDQWDQHRXVSHUFHQWDJHSRLQWLQVWDQWDQHRXV
SHUFHQWDJHSRLQWLQVWDQWDQHRXV
LQFUHDVH
LQFUHDVHLQFUHDVH
LQFUHDVH LQ
LQLQ
LQ
LQWHUHVWUD
LQWHUHVWUDLQWHUHVWUD
LQWHUHVWUDWHV
WHVWHV
WHV

3UH
3UH3UH
3UH
7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH 7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH
7D[&DVK)ORZ6HQVLWLYLW\JLYHQDRQH
SHUFHQWDJHSRLQWLQVWDQWDQHRXV
SHUFHQWDJHSRLQWLQVWDQWDQHRXVSHUFHQWDJHSRLQWLQVWDQWDQHRXV
SHUFHQWDJHSRLQWLQVWDQWDQHRXV
GHFUHDVH
GHFUHDVHGHFUHDVH
GHFUHDVH LQ
LQLQ
LQ
LQWHUHVWUDWHV
LQWHUHVWUDWHVLQWHUHVWUDWHV
LQWHUHVWUDWHV

'HFHPEHU 

     
'HFHPEHU 

   
_____
* Pre-tax cash flow sensitivity given a one percentage point decrease in interest rates requires an assumption of negative interest rates in markets
where existing interest rates are below one percent.
Based on assumptions included in the analysis, sensitivity to a one-percentage point instantaneous increase in interest
rates at year-end 2009 was an increase in Ford Credit's pre-tax cash flow over a twelve-month horizon of $27 million
compared to a decrease of $28 million at year-end 2008. Correspondingly, the sensitivity to a one-percentage point
instantaneous decrease in interest rates at year-end 2009 was a decrease in its pre-tax cash flow over a twelve-month
horizon of $27 million compared to an increase of $28 million at year-end 2008. This change primarily results from the
decline in Ford Credit's managed receivables and Ford Credit's limited ability to obtain interest rate derivatives.
Foreign Currency Risk. Ford Credit's policy is to minimize exposure to changes in currency exchange rates. To meet
funding objectives, Ford Credit borrows in a variety of currencies, principally U.S. dollars and euros. Ford Credit faces
exposure to currency exchange rates if a mismatch exists between the currency of receivables and the currency of the debt
funding those receivables. When possible, receivables are funded with debt in the same currency, minimizing exposure to
exchange rate movements. When a different currency is used, Ford Credit may execute the following foreign currency
derivatives to convert substantially all of foreign currency debt obligations to the local country currency of the receivables:
• Foreign currency swap — an agreement to convert non-U.S. dollar long-term debt to U.S. dollar-denominated
payments or non-local market debt to local market debt for our international affiliates; or
• Foreign currency forward — an agreement to buy or sell an amount of funds in an agreed currency at a certain time
in the future for a certain price.
As a result of this policy, Ford Credit believes its market risk exposure relating to changes in currency exchange rates
is insignificant.
While the sensitivity analysis presented is Ford Credit's best estimate of the impacts of the specified assumed interest
rate scenarios, its actual results could differ from those projected. The model Ford Credit uses to conduct this analysis is
heavily dependent on assumptions. Embedded in the model are assumptions regarding the reinvestment of maturing
asset principal, refinancing of maturing debt, replacement of maturing derivatives, exercise of options embedded in debt
and derivatives, and predicted repayment of retail installment sale and lease contracts ahead of contractual maturity.
Ford Credit's repayment projections ahead of contractual maturity are based on historical experience. If interest rates or
other factors change, Ford Credit's actual prepayment experience could be different than projected.
The fair value of Ford Credit's net derivative financial instruments (derivative assets less derivative liabilities) at
December 31, 2009 was $683 million, which was $963 million lower than December 31, 2008. The decrease primarily
reflects lower derivative notional value. For additional information regarding our Financial Services sector derivatives, see
Note 26 of the Notes to the Financial Statements.