Siemens 2007 Annual Report Download - page 186

186 Management’s discussion and analysis
We measure interest rate risk by using either fair value sensitivity or cash fl ow
sensitivity depending on whether the instrument has a fi xed or variable interest
rate. We generate total fair value sensitivity as well as the total cash fl ow sensitiv-
ity by aggregating the sensitivities of the various exposures denominated in dif-
ferent currencies. Depending on whether we have a long or short interest rate
position, interest rate risk can arise on increasing or decreasing market moves in
the relevant yield curve.
The fair value sensitivity calculation for fi xed interest rate instruments shows
the change in fair value, defi ned as present value, caused by a hypothetical
100-basis point shift in the yield curve. The fi rst step in this calculation is to use
the yield curve to discount the gross cash fl ows, meaning the present value of
future interest and principal payments of fi nancial instruments with fi xed inter-
est rates. A second calculation discounts the gross cash fl ows using a 100-basis
point shift of the yield curve. In all cases, we use the generally accepted and pub-
lished yield curves on the relevant balance sheet date. The fair value interest rate
risk results primarily from long-term fi xed rate debt obligations and interest
bearing investments. Assuming a 100-basis point increase in interest rates, this
risk was €40 million as of September 30, 2007, increasing from the comparable
value of €24 million as of September 30, 2006 assuming a 100-basis point
decrease.
For variable-rate instruments, the interest rate risk is monitored by using the
cash fl ow sensitivity also assuming a 100-basis point shift of the yield curves.
Such risk mainly results from hedges of fi xed-rate debt obligations that swap fi xed
rates of interest into variable-rates of interest. This exposure leads to a cash fl ow
interest rate risk of €72 million as of September 30, 2007, compared to €32 million
the year before, assuming a 100-basis point increase in interest rates.