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34.5. 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, 2016

  

Dec. 31, 2015

 

  

 

  

 

  

 

  

 

  

 

Notional amount of hedging instruments used in cash flow hedges:

  

 

  

 

  

 

  

 

  

 

Interest rate swaps

  

3,019

  

13,851

  

184

  

17,054

  

8,864

Currency forwards

  

38,057

  

46,697

  

–

  

84,754

  

102,587

Currency options

  

8,350

  

17,731

  

–

  

26,081

  

22,989

Currency swaps

  

1,976

  

319

  

–

  

2,295

  

7,353

Cross-currency swaps

  

785

  

1,166

  

–

  

1,951

  

1,762

Commodity futures contracts

  

346

  

334

  

–

  

679

  

771

Notional amount of other derivatives:

  

 

  

 

  

 

  

 

  

 

Interest rate swaps

  

25,354

  

41,149

  

18,109

  

84,612

  

85,316

Interest rate option contracts

  

–

  

–

  

–

  

–

  

–

Currency forwards

  

24,216

  

4,219

  

1

  

28,436

  

25,383

Other currency options

  

33

  

12

  

–

  

45

  

45

Currency swaps

  

10,751

  

1,456

  

–

  

12,207

  

9,874

Cross-currency swaps

  

3,612

  

5,228

  

–

  

8,839

  

8,417

Commodity futures contracts

  

699

  

536

  

–

  

1,235

  

1,517

Both derivatives closed with offsetting transactions and the offsetting transactions themselves are included in the respective notional amount. The offsetting transactions cancel out the effects of the original hedging transactions. If the offsetting transactions were not included, the respective notional amount would be signifycantly lower. In addition to the derivatives used for hedging foreign currency, interest rate and price risk, the Group held options and other derivatives on equity instruments at the reporting date with a notional amount of €45 million (previous year: €1.4 billion) whose remaining maturity is under one year.

Existing cash flow hedges in the notional amount of €811 million (previous year: €– million) were discontinued because of a reduction in the projections. €5 million (previous year: €– million) was transferred from the cash flow hedge reserve to the financial result, reducing earnings. In addition, hedges were to be terminated due to internal risk regulations.

Items hedged under 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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in %

  

EUR

  

CHF

  

CNY

  

CZK

  

GBP

  

JPY

  

KRW

  

SEK

  

USD

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

Interest rate for six months

  

−0.2512

  

−0.576

  

3.5311

  

0.1515

  

0.3745

  

0.0237

  

1.5085

  

−0.4449

  

0.9957

Interest rate for one year

  

−0.2139

  

−0.5631

  

3.7798

  

0.1518

  

0.4013

  

0.0232

  

1.5060

  

−0.4313

  

1.1687

Interest rate for five years

  

0.0740

  

−0.321

  

4.4050

  

0.5050

  

0.8657

  

0.0588

  

1.6750

  

0.2580

  

1.9724

Interest rate for ten years

  

0.6520

  

0.1480

  

4.5550

  

0.9650

  

1.2325

  

0.2100

  

1.8350

  

1.0980

  

2.3460