Form 20-F 2005

27. Risk management and derivative instruments
Rhodia is exposed to market risks as a result of its commercial and business transactions. This exposure is mainly related
to fluctuations in exchange and interest rates. At December 31, 2005, Rhodia held derivative instruments, some of which are
designated as cash flow hedges, as well as non-hedging derivative instruments.
Derivative instruments are recognized in the balance sheet at their fair value in the following amounts:
(in millions of euros) At December 31, 2005 At December 31, 2004
Current assets Current liabilities Current assets Current liabilities
Interest rate instruments 9 8 29 44
Foreign exchange instruments 32 5 5 4
Oil-based commodities instruments 1 1 2 1
Total 42 14 36 49
Calculation of the fair value of derivative instruments: The best indication of the fair value of a contract is the price which
would be agreed to between a willing seller and buyer in an arm’s length transaction. At the trade date, it is generally the transaction
price. Subsequently, the measurement of the contract should be based on observable market data which provide the most reliable
indication of the fair value of a derivative instrument:
options are measured based on valuation models (such as Black & Scholes) using quotes published on active markets
and/or by obtaining quotations from third party financial institutions;
foreign exchange and interest rate instruments are measured by discounting future cash flow payments;
commodity-based derivatives are measured by counterparties based on market quotations.
27.1. Interest rate risk management
Rhodia’s exposure to interest rate risk mainly relates to its net indebtedness and, to a lesser extent, its interest rate
derivatives portfolio.
Management of fixed and floating rates
The breakdown of the Group’s debt (excluding accrued interest payable) between fixed and floating rates, and excluding its
interest rate derivatives portfolio, is as follows:
(in millions of euros) At December 31, 2005 At December 31, 2004
Floating rate 551 885
Fixed rate 2,440 2,054
Borrowings adjusted for accrued interest payable 2,991 2,939
Floating-rate cash and cash equivalents 808 480
Fixed-rate cash and cash equivalents 112 132
Cash and cash equivalents 920 612
Accrued interest payable 23 32
Accrued interest receivable (5) (5)
Net indebtedness 2,089 2,354
F-50 Form 20 - F 2005 - Rhodia