Ford 2009 Annual Report Download - page 71

Quantitative and Qualitative Disclosures About Market Risk
Ford Motor Company | 2009 Annual Report 69
OVERVIEW
We are exposed to a variety of market and other risks, including the effects of changes in foreign currency exchange
rates, commodity prices, interest rates, as well as risks to availability of funding sources, hazard events, and specific asset
risks.
These risks affect our Automotive and Financial Services sectors differently. We monitor and manage these exposures
as an integral part of our overall risk management program, which includes regular reports to a central management
committee, the Global Risk Management Committee ("GRMC"). The GRMC is chaired by our Chief Financial Officer, and
its members include our Treasurer, our Corporate Controller, and other members of senior management.
Our Automotive and Financial Services sectors are exposed to liquidity risk, or the possibility of having to curtail their
businesses or being unable to meet present and future financial obligations as they come due because funding sources
may be reduced or become unavailable. We maintain plans for sources of funding to ensure liquidity through a variety of
economic or business cycles. As discussed in greater detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" our funding sources include sales of receivables in securitizations and other
structured financings, unsecured debt issuances, equity and equity-linked issuances, and bank borrowings.
We are exposed to a variety of insurable risks, such as loss or damage to property, liability claims, and employee injury.
We protect against these risks through a combination of self-insurance and the purchase of commercial insurance
designed to protect against events that could generate significant losses.
Direct responsibility for the execution of our market risk management strategies resides with our Treasurer's Office and
is governed by written polices and procedures. Separation of duties is maintained between the development and
authorization of derivative trades, the transaction of derivatives, and the settlement of cash flows. Regular audits are
conducted to ensure that appropriate controls are in place and that they remain effective. In addition, our market risk
exposures and our use of derivatives to manage these exposures are approved by the GRMC, and reviewed by the Audit
Committee of our Board of Directors.
In accordance with corporate risk management policies, we use derivative instruments, when available, such as forward
contracts, swaps and options that economically hedge certain exposures (foreign currency, commodity, and interest rates).
Derivative positions, when available, are used to hedge underlying exposures; we do not use derivative contracts for
trading, market-making or speculative purposes. In certain instances, we forgo hedge accounting, which results in
unrealized gains and losses that are recognized currently in net income.
The continued deterioration of our derivative capacity in the first half of 2009 resulted in unhedged currency exposure
from cross-border intercompany lending during 2009. Total unhedged intercompany loans were about $1.7 billion as of
March 31, 2009 and increased to about $5.5 billion as of June 30, 2009. Currency exposure from intercompany loans was
substantially hedged at December 31, 2009 through implementation of collateral arrangements with certain counterparties
and continued reduction in intercompany loans resulting from local funding actions. For additional information on our
derivatives, see Note 26 of the Notes to the Financial Statements.
The market and counterparty risks of our Automotive sector and Ford Credit are discussed and quantified below.