Siemens 2009 Annual Report Download - page 277

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 Managing Board statements, Independent auditors’ report, Additional information
 Notes to Consolidated Financial Statements
(in millions of €, except where otherwise
stated and per share amounts)
reflected in the Consolidated Financial Statements. The exact
calculation of fair values for derivative financial instruments
depends on the specific type of instruments:
Derivative interest rate contracts – The fair values of deriva-
tive interest rate contracts (e.g. interest rate swap agreements)
are estimated by discounting expected future cash flows using
current market interest rates and yield curves over the remain-
ing term of the instrument. Interest rate options are valued on
the basis of quoted market prices or on estimates based on op-
tion pricing models.
Derivative currency contracts – The fair value of forward for-
eign exchange contracts is based on forward exchange rates.
Currency options are valued on the basis of quoted market
prices or on estimates based on option pricing models.
Credit default swaps – The fair value of credit default swaps is
calculated by comparing discounted expected future cash
flows using current bank conditions with discounted expected
future cash flows using contracted conditions.
In determining the fair values of the derivative financial in-
struments, no compensating effects from underlying transac-
tions (e.g. firm commitments and anticipated transactions)
are taken into consideration.
The following table allocates our financial assets and liabilities
measured at fair value to the three levels of the fair value hier-
archy.
Financial assets and liabilities measured at fair value are pre-
sented in the following table:
Fair values for available-for-sale financial assets are derived
from quoted market prices in active markets.
The Company limits default risks in derivative instruments by
a careful counterparty selection. Derivative instruments are
principally transacted with financial institutions with invest-
ment grade credit ratings. The fair valuation of derivative in-
struments at Siemens incorporates all factors that market par-
ticipants would consider, including an adequate consideration
of the counterparties’ credit risks. This assures that the coun-
terparties’ credit risks themselves as well as any changes in
the counterparties’ credit worthiness are included in the fair
valuation of the Company ’s derivative instruments and thus
B27T083_E
September 30,
2009 2008
Financial assets measured at fair value
Available-for-sale financial assets 226 185
Derivative financial instruments 2,871 997
Not designated in a hedge
accounting relationship 820 331
In connection with fair value hedges 1,474 394
Foreign currency exchange derivatives 10 15
Interest rate derivatives 1,464 379
In connection with cash flow hedges 421 144
Foreign currency exchange derivatives 413 144
Interest rate derivatives 8 –
Embedded derivatives 156 128
Financial liabilities measured at fair value
Derivative financial instruments 998 1,405
Not designated in a hedge
accounting relationship 731 860
In connection with fair value hedges 4 70
Foreign currency exchange derivatives 4 18
Interest rate derivatives – 52
In connection with cash flow hedges 130 331
Foreign currency exchange derivatives 130 331
Interest rate derivatives – –
Embedded derivatives 133 144
B27T084_E
Level  Level  Level  Total
Financial assets
measured at fair value
Available-for-sale
financial assets 226 – – 226
Derivative financial
instruments – 2,871 – 2,871
Total 226 2,871 – 3,097
Financial liabilities
measured at fair value
Derivative financial
instruments – 998 – 998