Annual Report 2010 - Knorr-Bremse AG.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 153
flows or changes in value are offset in full. The Knorr-Bremse Group uses forward exchange contracts,
currency options and cross currency swaps as hedging instruments.
Not included in the hedging report are forward exchange derivatives with a nominal value of
MEUR 28.0 and a negative net present value totaling MEUR 3.4. Currency futures contracts amounting
to MEUR 876.6 in total (representing hedged risks) are included in macro hedges. Of this amount,
MEUR 295.0 is attributable to the hedging of assets (micro hedges), MEUR 221.8 to the hedging of open
contracts (micro hedges) and MEUR 359.8 to the hedging of high-probability transactions (portfolio
hedges).
Commodity futures contracts are used exclusively to hedge price risks arising on fluctuations in the
purchase prices of raw materials used in Knorr-Bremse Group products (portfolio hedges). The volume
of underlying transactions (hedged items) is calculated on the basis of high-probability requirements
for raw materials over a rolling two-year planning period. The derivatives are based on reference indices
traded on commodity futures exchanges. The effectiveness of the hedging relationship is retrospectively
analyzed using statistical correlation techniques, showing a correlation in excess of 80%. Concluded
contracts totaling MEUR 13.9 are carried in full in macro hedges.
The nominal and market values of financial instruments as at December 31, 2010 break down as follows:
Total
Dec. 31, 2010
Total
Dec. 31, 2010
Total
Dec. 31, 2009
Total
Dec. 31, 2009
in EUR millions Nominal value Market value Nominal value Market value
Foreign exchange contracts
Forward exchange transactions 652 (8) 668 (7)
Currency options 113 1 112 2
Interest rate contracts
Cross currency swaps 140 (26) 140 (12)
Commodity-related contracts
Swaps 14 1 10 1
Negative market values correspond to the risks associated with financial derivatives; of these, MEUR 3.4
are recorded under accrued liabilities. Positive market values are offset by risks associated with the underlying
transactions (hedged items) in the respective macro hedges.
While cross currency swaps generally come under the heading of interest rate instruments, in terms of
content they are used exclusively to hedge foreign currency risks, because the interest rates in the underlying
currencies are exchanged at fixed rates.
The market value of financial derivatives is best defined as the price one party is prepared to pay in order
to assume the rights and/or obligations of another party. Market values are calculated on the basis
of market information available at the balance sheet date and by applying standard market valuation
methods as follows: