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Annual Report

32.5. Methods for monitoring hedge effectiveness

In the Volkswagen Group, hedge effectiveness is assessed prospectively using the critical terms match method and using statistical methods in the form of a regression analysis. Retrospective analysis of effectiveness uses effectiveness tests in the form of the dollar offset method or a regression analysis.

Under the dollar offset method, the changes in value of the hedged item expressed in monetary units are compared with the changes in value of the hedging instrument expressed in monetary units.

Where regression analysis is used, the change in value of the hedged item is presented as an independent variable, and that of the hedging instrument as a dependent variable. Hedge relationships are classified as effective if they have sufficient coefficients of determination and slope factors.

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NOTIONAL AMOUNT OF DERIVATIVES

 

 

 

 

 

 

Remaining term

 

Total notional amount

 

Total notional amount

€ million

 

under one year

 

within one to five years

 

over five years

 

Dec. 31, 2010

 

Dec. 31, 2009

Notional amount of hedging instruments used in cash flow hedges:

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

3,239

 

4,120

 

316

 

7,676

 

11,020

Currency forwards

 

18,609

 

36,183

 

35

 

54,827

 

20,681

Currency options

 

984

 

1,023

 

 

2,007

 

3,685

Currency swaps

 

2,849

 

101

 

 

2,950

 

1,543

Cross-currency swaps

 

1,074

 

1,875

 

95

 

3,045

 

2,633

Commodity futures contracts

 

242

 

657

 

35

 

933

 

994

Notional amount of other derivatives:

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

16,815

 

23,493

 

168

 

40,477

 

40,820

Interest rate option contracts

 

 

 

40

 

40

 

262

Currency forwards

 

1,450

 

560

 

179

 

2,188

 

1,314

Currency swaps

 

3,082

 

38

 

 

3,119

 

5,683

Cross-currency swaps

 

3,244

 

2,995

 

42

 

6,282

 

3,112

Commodity futures contracts

 

531

 

387

 

 

918

 

373

In addition to the derivatives used for hedging foreign currency, interest rate and price risk, at the reporting date the Group held options and other derivatives on equity instruments whose remaining maturity is under one year with a notional amount of €3.5 billion (previous year: €– billion) and options on equity instruments whose remaining maturity is more than one year with a notional amount of €9.1 billion (previous year: €11.1 billion). These consist primarily of the options on the outstanding shares of Porsche Zwischenholding GmbH and the forward on the operating trading business of Porsche Holding Salzburg.

Due to the early repayment of an intra-Group loan and a reduction in projections, existing cash flow hedges with a notional amount of €1.7 billion were discontinued. €4 million from the cash flow hedge reserve was transferred to the financial result, reducing earnings.

The hedged items in cash flow hedges are expected to be realized in accordance with the maturity buckets of the hedges reported in the table.

The fair values of the derivatives are estimated using market data at the balance sheet date as well as by appropriate valuation techniques. The following term structures were used for the calculation:

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as %

 

EUR

 

USD

 

GBP

 

CZK

 

SEK

 

RUB

 

AUD

 

CHF

 

JPY

Interest rate for six months

 

1.2270

 

0.4559

 

1.0500

 

1.5600

 

2.0150

 

4.4000

 

5.1325

 

0.2383

 

0.3475

Interest rate for one year

 

1.5070

 

0.7809

 

1.5094

 

1.8000

 

2.3100

 

5.3050

 

5.6775

 

0.5167

 

0.5663

Interest rate for five years

 

2.4760

 

2.1855

 

2.6300

 

2.5800

 

3.2030

 

7.3700

 

5.8550

 

1.4000

 

0.5650

Interest rate for ten years

 

3.3050

 

3.3990

 

3.5400

 

3.0500

 

3.6430

 

8.0000

 

6.0650

 

2.1550

 

1.1630

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