Siemens 2007 Annual Report Download - page 293

Notes to Consolidated Financial Statements 293
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
32 Financial risk management
Market risks
Market fl uctuations may result in signifi cant cash-fl ow and profi t volatility risk for
Siemens. Its worldwide operating business as well as its investment and fi nancing
activities are affected by changes in foreign exchange rates, interest rates and
equity prices. To optimize the allocation of the fi nancial resources across the
Groups, as well as to secure an optimal return for its shareholders, Siemens iden-
tifi es, analyzes and proactively manages the associated fi nancial market risks.
The Company seeks to manage and control these risks primarily through its regu-
lar operating and fi nancing activities, and uses derivative instruments when
deemed appropriate.
Management of fi nancial market risk is a key priority for Siemens’ Managing
Board. As a member of this Board, the Chief Financial Offi cer covers the specifi c
responsibility for this part of the overall risk management system. At the highest
level, the Managing Board retains ultimate accountability. For practical business
purposes, the Managing Board delegates responsibilities to central functions and
to the Groups. SFS holds a minor trading portfolio which is subject to tight limits.
As of September 30, 2007, it has a value-at-risk close to zero.
Within the various methodologies to analyze and manage risk, Siemens imple-
mented a system based on “sensitivity analysis”. This tool enables the risk manag-
ers to identify the risk position of the entities. Sensitivity analysis provides an
approximate quantifi cation of the exposure in the event that certain specifi ed
parameters were to be met under a specifi c set of assumptions. The risk estimates
provided here assume:
¢ a 20% decrease in equity prices of all investments traded in an active market,
which are classifi ed as current available-for-sale fi nancial assets;
¢ a simultaneous, parallel foreign exchange rates shift in which the Euro appreci-
ates against all currencies by 10%;
¢ a parallel shift of 100-basis points of the interest rate yield curves in all cur-
rencies.
The potential economic impact, due to these assumptions, is based on the occur-
rence of adverse market conditions and refl ects estimated changes resulting
from the sensitivity analysis. Actual results that are included in the Consolidated
Statements of Income may differ substantially from these estimates due to actual
developments in the global fi nancial market.
Any market sensitive instruments, including equity and interest bearing
investments that our Company’s pension plans hold are not included in the fol-
lowing quantitative and qualitative disclosure. For additional information see
Note 23.