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 |
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REMAINING TERM |
TOTAL NOTIONAL AMOUNT |
TOTAL NOTIONAL AMOUNT | |||||||
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€ million |
under one year |
within one to five years |
over five years |
Dec. 31, 2014 |
Dec. 31, 2013 | |||||
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Notional amount of hedging instruments used in cash flow hedges: |
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Interest rate swaps |
1,228 |
3,926 |
– |
5,154 |
6,127 |
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Currency forwards |
40,822 |
43,421 |
– |
84,243 |
65,366 |
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Currency options |
7,222 |
9,024 |
– |
16,246 |
10,365 |
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Currency swaps |
4,461 |
474 |
4 |
4,938 |
4,883 |
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Cross-currency swaps |
315 |
1,300 |
– |
1,615 |
1,293 |
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Commodity futures contracts |
360 |
498 |
– |
858 |
749 |
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Notional amount of other derivatives: |
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Interest rate swaps |
18,991 |
42,981 |
14,216 |
76,188 |
65,568 |
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Interest rate option contracts |
– |
– |
– |
– |
61 |
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Currency forwards |
5,437 |
1,336 |
1 |
6,774 |
7,077 |
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Other currency options |
45 |
91 |
– |
137 |
42 |
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Currency swaps |
8,475 |
259 |
– |
8,734 |
5,226 |
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Cross-currency swaps |
4,034 |
4,890 |
11 |
8,935 |
10,022 |
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Commodity futures contracts |
895 |
1,099 |
– |
1,994 |
1,384 |
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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 €1.5 billion (previous year: €1.5 billion) whose remaining maturity is under one year.
Existing cash flow hedges in the notional amount of €18 million (previous year: €214 million) were discontinued because of a reduction in the projections. €0 million (previous year: €1 million) was transferred from the cash flow hedge reserve to the financial result, decreasing earnings.
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 |
AUD |
CAD |
CHF |
CNY |
GBP |
KRW |
SEK |
USD | |||||||||
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Interest rate for six months |
0.1286 |
2.6375 |
1.2794 |
0.0323 |
4.8462 |
0.5827 |
2.1152 |
0.2888 |
0.2718 |
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Interest rate for one year |
0.1165 |
2.5215 |
1.3166 |
−0.0090 |
4.4683 |
0.6412 |
2.0550 |
0.2574 |
0.4307 |
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Interest rate for five years |
0.3587 |
2.6700 |
1.7710 |
0.0630 |
4.1750 |
1.4417 |
2.2050 |
0.6445 |
1.7550 |
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Interest rate for ten years |
0.8125 |
3.1450 |
2.2610 |
0.5175 |
3.8400 |
1.8473 |
2.4400 |
1.2625 |
2.2560 |