General Motors 2013 Annual Report Download - page 51

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GENERAL MOTORS COMPANY AND SUBSIDIARIES
The overall financial risk management program is under the responsibility of the Risk Management Committee which reviews and,
where appropriate, approves strategies to be pursued to mitigate these risks. The Risk Management Committee comprises members of
our management and functions under the oversight of the Audit Committee, a committee of the Board of Directors. The Audit
Committee assists and guides the Board of Directors in its oversight of our financial and risk management strategies. A risk
management control framework is utilized to monitor the strategies, risks and related hedge positions in accordance with the policies
and procedures approved by the Risk Management Committee. Our risk management policy intends to protect against risk arising
from extreme adverse market movements on our key exposures.
The following analyses provide quantitative information regarding exposure to foreign currency exchange rate risk and interest rate
risk. Sensitivity analysis is used to measure the potential loss in the fair value of financial instruments with exposure to market risk.
The models used assume instantaneous, parallel shifts in exchange rates and interest rate yield curves. For options and other
instruments with nonlinear returns, models appropriate to these types of instruments are utilized to determine the effect of market
shifts. There are certain shortcomings inherent in the sensitivity analyses presented, due primarily to the assumption that interest rates
change in a parallel fashion and that spot exchange rates change instantaneously. In addition the analyses are unable to reflect the
complex market reactions that normally would arise from the market shifts modeled and do not contemplate the effects of correlations
between foreign currency pairs or offsetting long-short positions in currency pairs which may significantly reduce the potential loss in
value.
Foreign Currency Exchange Rate Risk
We have foreign currency exposures related to buying, selling and financing in currencies other than the functional currencies of
the operations. At December 31, 2013 our most significant foreign currency exposures were the Euro/British Pound, U.S. Dollar/
Korean Won, Euro/Korean Won and Euro/U.S. Dollar. Derivative instruments such as foreign currency forwards, swaps and options
are used primarily to hedge exposures with respect to forecasted revenues, costs and commitments denominated in foreign currencies.
At December 31, 2013 such contracts had remaining maturities of up to 23 months.
At December 31, 2013 and 2012 the net fair value liability of financial instruments with exposure to foreign currency risk was $1.0
billion and $4.0 billion. This presentation utilizes a population of foreign currency exchange derivatives, embedded derivatives and
foreign currency denominated debt and excludes the offsetting effect of foreign currency cash, cash equivalents and other assets. The
potential loss in fair value for such financial instruments from a 10% adverse change in all quoted foreign currency exchange rates
would be $195 million and $671 million at December 31, 2013 and 2012.
We are exposed to foreign currency risk due to the translation and remeasurement of the results of certain international operations
into U.S. Dollars as part of the consolidation process. Fluctuations in foreign currency exchange rates can therefore create volatility in
the results of operations and may adversely affect our financial condition.
The following table summarizes the amounts of automotive foreign currency translation and transaction and remeasurement losses
(dollars in millions):
Years Ended December 31,
2013 2012
Foreign currency translation losses recorded in Accumulated other comprehensive loss .............. $ 729 $ 118
Losses resulting from foreign currency transactions and remeasurements recorded in earnings ........ $ 352 $ 117
Interest Rate Risk
We are subject to market risk from exposure to changes in interest rates related to certain financial instruments, primarily debt,
capital lease obligations and certain marketable securities. At December 31, 2013 we did not have any interest rate swap positions to
manage interest rate exposures in our automotive operations. At December 31, 2013 and 2012 the fair value liability of debt and
capital leases was $6.8 billion and $5.3 billion. The potential increase in fair value resulting from a 10% decrease in quoted interest
rates would be $251 million and $112 million at December 31, 2013 and 2012.
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