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(8) Liabilities
Contingent liabilities and other financial obligations
 Liabilities - Contingent liabilities and other financial obligations') "(8) Liabilities - Contingent liabilities and other financial obligations") |
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Derivative financial instruments
The limits of action, responsibilities and verification procedures in connection with derivative financial instruments are laid down in a binding form in internal directives for Group companies. In particular, financial futures and derivatives must not be used for speculative purposes but only for hedging risks in connection with underlying transactions and associated financing operations. Hedging is restricted to transaction risks.
Derivative financial instruments for hedging recognized assets or liabilities are shown in the balance sheet at fair value. Changes in the fair value are recorded in the income statement. Financial instruments for hedging future cash flow are also stated in the balance sheet at fair value, but changes in the fair value of such instruments are recognized without effect on net income under retained earnings, taking into consideration the applicable taxes on income. Such changes are recognized in the income statement when the underlying transactions concerned are effected.
Freudenberg & Co. uses derivative financial instruments for hedging interest rate, currency and interest rate, and foreign exchange risks.
The face value of derivatives entered into for interest rate hedging was 240.0 million Euro (2002: – million Euro). As at December 31, 2003, the negative net fair value of these derivatives was 3.1 million Euro (2002: – million Euro).
These derivatives were used for hedging against increases in interest rates, which have reached a historic low.