Siemens 2008 Annual Report Download - page 293

Notes to Consolidated Financial Statements 197
(in millions of €, except where otherwise stated and per share amounts)
To optimize the Company’s position with regard to interest income and interest expenses and to minimize the
overall nancial interest rate risk, Corporate Treasury performs corporate interest rate risk management
together with SFS as operating service provider. Part of the interest rate risk management concept is a Corpo-
rate-wide interest rate overlay management to match interest periods of hedges with intended maturities of
assets and liabilities. Where it is not contrary to country-specic regulations, all Siemens segments, entities and
afliated companies generally obtain any required nancing through Corporate Treasury in the form of loans or
intercompany clearing accounts. The same concept is adopted for deposits of cash generated by the units.
Interest rate risk is measured by using either fair value sensitivity or cash ow sensitivity depending on whether
the instrument has a xed or variable interest rate. The total fair value sensitivity as well as the total cash ow
sensitivity is generated by aggregating the sensitivities of the various exposures denominated in different cur-
rencies. Depending on whether Siemens has 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 xed interest rate instruments shows the change in fair value, dened
as present value, caused by a hypothetical 100-basis point shift in the yield curve. The rst step in this calcula-
tion is to use the yield curve to discount the gross cash ows, meaning the present value of future interest and
principal payments of nancial instruments with xed interest rates. A second calculation discounts the gross
cash ows using a 100-basis point shift of the yield curve. In all cases, Siemens uses the generally accepted and
published yield curves on the relevant balance sheet date. The fair value interest rate risk results primarily from
long-term xed rate debt obligations and interest-bearing investments. Assuming a 100-basis point increase in
interest rates, this risk was €102 as of September 30, 2008, increasing from the comparable value of €40 as of
September 30, 2007 assuming a 100-basis point increase.
For variable-rate instruments, the interest rate risk is monitored by using the cash ow sensitivity also assum-
ing a 100-basis point upwards shift of the yield curves. Such risk mainly results from hedges of xed-rate debt
obligations that swap xed-rates of interest into variable-rates of interest. This exposure leads to a cash ow
interest rate risk of €134 as of September 30, 2008, compared to €72 the year before, assuming a 100-basis point
increase in interest rates.
Liquidity risk
Liquidity risk results from the Company’s potential inability to meet its nancial liabilities, e.g. settlement of its
nancial debt, paying its suppliers and settling nance lease obligations. Beyond effective working capital and
cash management, Siemens mitigates liquidity risk by arranged borrowing facilities with highly rated nancial
institutions, via a medium-term notes program and via an established global commercial papers program. For
further information on short- and long-term debt see Note 23.
In addition to the above mentioned sources of liquidity, Siemens constantly monitors funding options available
in the capital markets, as well as trends in the availability and costs of such funding, with a view to maintaining
nancial exibility and limiting repayment risks.