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Fluctuations in foreign exchange rates, interest rates and share prices can also have a significant effect on our earnings. The management of financial risks is governed by a specific guideline and is the responsibility of the CFO of RWE AG. As explained earlier, the Asset Management Committee coordinates the management of risks arising from investments in securities. The Group Finance Department handles the operational implementation of the financial risk management system. It is also responsible for reporting on this risk category.
Due to our international activities, currency risk management is very important. Group companies are obliged to hedge all currency risks via RWE AG. The parent company determines the net financial position for each currency and hedges it with external market partners if necessary. The VaR concept is one of the tools used to measure and limit risk. In the year under review, the average VaR for RWE AG’s foreign currency position was less than €1 million, as was the highest VaR achieved in a single day.
Interest rate management is also ascribed significant importance. Our interest rate risks primarily stem from our interest-bearing investments and financial debt. Negative changes in value caused by unexpected interest rate movements are hedged with non-derivative and derivative financial instruments. In 2008, the average VaR for the interest rate risk associated with our financial debt and related hedges was €129 million. As of December, it totalled €147 million and was thus not much higher than the average for the year, despite the financial market crisis. The average VaR for interest-bearing investments including hedges was €53 million (December: €46 million) and for share investments it was €21 million (December: €27 million).
Risks and opportunities from changes in the value of securities are controlled by a professional fund management system. The Group’s financial transactions are recorded using centralized risk management software and monitored by RWE AG. This enables the balancing of risks across individual companies. Range of action, responsibilities and controls are set forth in internal guidelines to which our Group companies are obliged to adhere.
