Registration Document 2005 - Total.com

Financial markets related risks
Within its financing and cash management activities, the Group
uses derivative instruments in order to manage its exposure to
changes in interest rates and foreign exchange rates. This includes
mainly interest rates and currency swaps. The Group might also
use, on an occasional basis, futures, caps, floors and options
contracts. The current operations and their accounting treatment
are detailed in notes 1L, 20 and 27 to the consolidated financial
statements.
Risks relative to cash management activities and to interest
rate and foreign exchange financial instruments are managed in
accordance with rules set by the Group’s executive management.
Liquidity positions and the management of financial instruments
are centralized in the Treasury Department. Cash management
activities are organized into a specialized department for operations
on financial markets. The Financial Control Department handles
the daily monitoring of limits and positions and validates results.
It values financial instruments and, if necessary, performs sensitivity
analysis.
Management of currency exposure
The Group seeks to minimize the currency exposure of each
exposed entity by reference to its functional currency (primarily the
euro, dollar, pound sterling, and Norwegian krone).
For currency exposure generated by commercial activity, the
hedging of revenues and costs in foreign currencies is typically
performed using currency operations on the spot market and in
some cases on the forward market. The Group rarely hedges
estimated flows; when it does so it typically uses options.
With respect to currency exposure linked to non-current assets in
foreign currencies, the Group has a hedging policy which results
in reducing the associated currency exposure by financing in the
same currency.
Risk factors
Market risks 4
Short-term net currency exposure is periodically monitored
with limits set by the Group’s executive management. The
Group’s central treasury entities manage this currency exposure
and centralizes borrowing activities on the financial markets
(the proceeds of which are then are loaned to the borrowing
subsidiaries), cash centralization for Group companies and
investments of these funds on the monetary markets.
Management of short-term interest rate
exposure and cash
Cash balances, which are primarily composed of euros and dollars,
are managed with three main objectives set out by management (to
maintain maximum liquidity, to optimize revenue from investments
considering existing interest rate yield curves, and to minimize the
cost of borrowing), over a horizon of less than twelve months and
on the basis of a daily interest rate benchmark, primarily through
short-term interest rate swaps and short-term currency swaps,
without modification of the currency exposure.
Management of interest rate risk on
non-current debt
The Group’s policy consists of incurring non-current debt primarily
at a floating rate, or at a fixed rate depending on opportunities at
the issuance with regards to the level of interest rates, in dollars or
in euros according to general corporate needs. Long-term interest
rate and currency swaps can hedge debenture loans at their
issuance in order to create a variable rate synthetic debt. In order
to partially modify the interest rate structure of the long-term debt,
TOTAL can also enter into long-term interest rate swaps.
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