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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, 2017

  

Dec. 31, 2016

 

  

 

  

 

  

 

  

 

  

 

Notional amount of hedging instruments used in cash flow hedges:

  

 

  

 

  

 

  

 

  

 

Interest rate swaps

  

3,490

  

8,999

  

38

  

12,527

  

17,054

Currency forwards

  

32,329

  

35,538

  

–

  

67,867

  

84,754

Currency options

  

8,128

  

11,435

  

–

  

19,563

  

26,081

Cross-currency swaps

  

–

  

–

  

–

  

–

  

2,295

Cross-currency interest rate swaps

  

387

  

165

  

–

  

551

  

1,951

Commodity future contracts

  

–

  

–

  

–

  

–

  

679

Notional amount of other derivatives:

  

 

  

 

  

 

  

 

  

 

Interest rate swaps

  

20,483

  

48,067

  

20,125

  

88,675

  

84,612

Interest rate option contracts

  

–

  

–

  

–

  

–

  

–

Currency forwards

  

19,592

  

2,942

  

2

  

22,535

  

28,436

Other currency options

  

10

  

–

  

–

  

10

  

45

Cross-currency swaps

  

20,825

  

1,451

  

–

  

22,276

  

12,207

Cross-currency interest rate swaps

  

3,350

  

6,025

  

293

  

9,667

  

8,839

Commodity future contracts

  

798

  

477

  

–

  

1,275

  

1,235

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 significantly 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 €29 million (previous year: €45 million) whose remaining maturity is under one year.

Existing cash flow hedges in the notional amount of €361 million (previous year: €811 million) were discontinued because of a reduction in the projections. €3 million (previous year: €5 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

  

−0.3214

  

−0.5535

  

4.9281

  

0.4824

  

0.5446

  

0.0281

  

1.7108

  

−0.3815

  

1.7499

Interest rate for one year

  

−0.2826

  

−0.4924

  

4.7799

  

0.4543

  

0.6229

  

0.0295

  

1.8385

  

−0.3298

  

1.9011

Interest rate for five years

  

0.3170

  

−0.1410

  

4.7400

  

1.6200

  

1.0325

  

0.1013

  

2.1275

  

0.4980

  

2.2400

Interest rate for ten years

  

0.8840

  

0.2690

  

4.6300

  

1.8450

  

1.2735

  

0.2613

  

2.2000

  

1.2000

  

2.3920