BMW 2005 Annual Report Download - page 117

The fair values shown are computed using mar-
ket information available at the balance sheet date,
on the basis of prices quoted by the contract part-
ners or using appropriate measurement methods,
These interest rates were adjusted, where necessary, to take account of the credit quality and risk of the
underlying financial instrument.
e.g. discounted cash flow models. In the latter case,
amounts were discounted at 31 December 2005 on
the basis of the following interest rates:
116
Use and control of financial instruments
As an enterprise with worldwide operations, busi-
ness is conducted in a variety of currencies, from
which exchange rate risks arise. The BMW Group’s
operations are financed in various currencies, mainly
by the issue of bonds and medium term notes and
through bank loans. The BMW Group’s financial
management system involves the use of standard
financial instruments such as short-term deposits,
investments in variable and fixed-income securities
as well as securities funds. The BMW Group is
therefore exposed to risks resulting from changes in
interest rates, stock market prices and exchange
rates. Financial instruments are only used to hedge
underlying positions or forecasted transactions.
Protection against such risks is provided at first
instance though natural hedging which arises when
the values of non-derivative financial instruments
have matching maturities and amounts (netting).
Derivative financial instruments are used to reduce
the risk remaining after netting.
The scope of permitted transactions, responsi-
bilities, financial reporting procedures and control
mechanisms used for financial instruments are set
out in internal guidelines. This includes, above all, a
clear separation of duties between trading and pro-
cessing. Exchange rate, interest rate and liquidity
risks of the BMW Group are managed at a corporate
level. At 31 December 2005, derivative financial
instruments were in place to hedge exchange rate
risks, in particular for the currencies US dollar, British
pound and Japanese yen.
Further disclosures relating to risk management
are provided in the management report.
Quantitative disclosures on financial
instruments
The carrying amount and fair value of material non-
derivative financial instruments are set out in the fol-
lowing table:
[39]Financial
instruments
in euro million 31.12.2005 31.12.2004*
Carrying amount Fair value Carrying amount Fair value
Receivables from sales financing 29,053 29,426 25,054 25,448
Financial liabilities 34,668 34,534 30,931 30,869
ISO Code EUR USD GBP JPY
in %
Interest rate for six months 2.6 4.7 4.6 0.1
Interest rate for one year 2.8 4.8 4.6 0.1
Interest rate for five years 3.2 4.9 4.6 1.0
Interest rate for ten years 3.8 5.0 4.5 1.7
*adjusted in accordance with Note [8] (a)
Group Financial Statements 62
Income Statements 63
Balance Sheets 64
Cash Flow Statements 66
Group Statement of
Changes in Equity 68
Statement of Income and Expenses
recognised directly in Equity 69
Notes 70
--Accounting Principles
and Policies 70
--Notes to the Income Statement 81
--Notes to the balance sheet 90
--Other Disclosures 114
--Segment Information 121
Auditors’ Report 125