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96 Consolidated Financial Statements
Notes
The VaR framework of the Group is based on the standard historical value at risk methodology; taking 2,000 of the most recent prices, based on which the day-to-day relative price changes are calculated. This simulation of past market conditions is not predicting the future movement in commodity prices. It is therefore not representing actual losses and only represents an indication of the future commodity price risks. As of August 31, 2008, the Group had a VaR of chf 14.4 million (2007: chf 7.8 million). The nominal exposure to commodity price risks is shown under liquidity risks.
Foreign currency risks
The Group operates across the world and consequently is exposed to multiple foreign currency risks, however primarily in eur, gbp and usd. The Group actively monitors its transactional currency exposures and consequently enters into currency hedges with the aim of preserving the value of assets, commitments and anticipated transactions. The related accounting treatment is explained in the section “Summary of Accounting Policies” under the caption “Derivative financial instruments and hedging activities” . Subsidiaries use internal forward contracts, primarily transacted with the Group’s In-house Bank, to hedge the foreign currency exposures of assets and liabilities, certain unrecognized firm commitments and highly probable forecasted purchases and sales. The Group’s In-house Bank hedges the net consolidated currency exposures in accordance with the Group’s Treasury Policy, mainly by means of forward currency contracts entered into with high credit quality financial institutions. The Group’s Treasury Policy imposes a dual risk control framework of both open position limits and near-time fair valuation of the net currency exposures. Both levels of control are substantially interlinked, avoiding excessive net currency exposures and substantial volatility in the Consolidated Statement of Income. The Group’s Treasury department is supervised by the Group Treasury Committee, which meets on at least a monthly basis to discuss Group Treasury risk management issues. The Group Treasury Committee monitors the Group’s foreign currency risk position and acts as a decision-taking body for the Group in this respect. The Group Treasury Committee consists of the Group’s cfo, the Group’s Head of Risk Management, the Group’s Head of Treasury and other stakeholders of Group Finance. The Group’s Treasury Policy giving guidance on treasury risk management including foreign currency and interest rate risks is approved and annually reviewed by the afrqcc. The Group’s Risk Management department reviews the consistency of the Group’s treasury management strategy with the Group’s Treasury Policy and reports the status to the Group’s cfo periodically. The afrqcc is informed by the cfo about the status and important matters in their quarterly meetings and approves requests of the Group’s Treasury Committee on important treasury risk matters including foreign currency risks for recommendation to the Board of Directors. The Board of Directors is the highest approval authority for all Group Treasury Risk Management matters. The table below provides an overview of the net exposure of eur, gbp and usd against each functional currency in the Group. According to the Group’s Treasury Policy, foreign exchange exposures are hedged as from identification on an intra-day basis in line with the approved exposure limits. In case of deviation from the agreed fx exposure limits, approval has to be sought from the Group’s Treasury Committee. Companies with the same functional currency are shown in one group.
