BMW 2009 Annual Report Download - page 131

129 Group Financial Statements
in euro million 31. 12. 2009 31. 12. 2008
Euro 5,514 6,241
US Dollar 6,628 5,646
British Pound 2,031 1,860
in euro million 31. 12. 2009 31. 12. 2008
Euro 47 52
US Dollar 139 119
British Pound 1 0 7
The BMW Group’s currency risk relates primarily to the
currencies shown.
Interest rate risk
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 in-
terest rates.
Interest rate risks can be managed by the use of interest
rate derivatives. The interest rate contracts used for hedging
purposes comprise mainly swaps which are accounted for
on the basis of whether they are designated as a fair value
hedge or as a cash flow hedge. A description of how inter-
est rate risk is managed is provided in the Group Manage-
ment Report on page 65.
As stated there, the BMW Group applies a value-at-risk
approach for internal reporting purposes and to manage
interest rate risks. This is based on a state-of-the-art his-
torical
simulation, in which the potential future fair value
These risks arise when funds with differing fixed-rate
periods or differing terms are borrowed and invested. All
items subject to, or bearing, interest are exposed to inter-
est rate risk. Interest rate risks can affect either side of the
balance sheet.
The fair values of the Group’s interest rate portfolios for the
three principal currencies were as follows at the end of the
reporting period:
losses of the interest rate portfolios are compared across
the Group with expected amounts measured on the basis
of a holding period of three months and a confidence
level of 99 %. Aggregation of these results creates a risk
reduction effect due to correlations between the various
portfolios.
In the following table the potential volume of fair value
fluc-
tuations – measured on the basis of the value-at-risk
approach – are compared with the expected value for the
interest rate relevant positions of the BMW Group for the
three principal currencies:
Other risks
The BMW Group is exposed to raw material price risks. A
description of how these risks are managed is provided in
the Group Management Report on page 65 et seq. In
order to reduce these risks, derivative financial instruments
are used that serve to hedge purchase price fluctuations
agreed with suppliers with respect to the raw material con-
tent of purchases. Changes in the fair values of these de-
rivatives, which generally track the quoted market prices of
the raw material being hedged, gives rise to market price
risks for the Group.
If the market prices of hedged raw materials had been 10 %
higher (lower) at 31 December 2009, the Group profit
before tax would have been euro 110 million higher (euro
110 million lower).
A further exposure relates to the residual value risk on
vehicles returned to the Group at the end of finance lease
contracts. The risks from financial instruments used in
this
context were not material to the Group in the past and
at the end of the reporting period. A description of how
these risks are managed is provided in the Group Manage-
ment
Report on pags 64 et seq. Information regarding
the
residual value risk from operating leases is provided in
the section on accounting policies.