The international nature of our business activities results in deliveries and payments in various currencies. Currency exchange fluctuations involve the risk of losses because assets denominated in currencies with a falling exchange rate lose value, whereas liabilities denominated in currencies with a rising exchange rate become more expensive. The net exposure, produced primarily by offsetting exports against imports in the individual currencies, is recorded and measured regularly. For many years now, Continental Corporation has been using natural hedges to reduce currency risks. These hedges are aimed at keeping the difference between income and expenses in any one currency as low as possible, thus minimizing the effect of exchange rate fluctuations against the euro. We also monitor and analyze expected exchange rate developments. Based on the results of our constant monitoring, exchange rate risks are hedged as necessary using appropriate financial instruments. Currency management sets tight limits for open positions and thus considerably reduces the hedging risk. For hedging, we only allow the use of those derivative financial instruments that can be reported and measured in the risk management system. The Corporation’s net foreign investments are generally not hedged against exchange rate fluctuations. Our imports into the Eurozone generally exceed exports to other currency zones.

Where variable interest rates are agreed for liabilities, these rates can fall and rise. The risks arising from rising interest rates are monitored and evaluated as part of our interest rate management activities, and managed using derivative interest rate hedging instruments. The Corporation’s interest-bearing liabilities are the subject of these activities. All interest rate hedges serve exclusively to manage identified interest rate risks.

The Continental Corporation is not exposed to a risk of fluctuation in the fair value of long-term, fixed interest rate financial liabilities due to changes in market interest rates, as the lenders cannot exercise any right to early repayment due to rate fluctuations.

To reduce counterparty risk, interest rate and currency management transactions are only entered into with selected banks. We minimize internal settlement risks by clearly segregating functional areas. The central controlling function regularly determines and monitors forecasted surpluses or shortages in individual currencies from the operating business throughout the Corporation. A liquidity forecast is prepared by central cash management on a regular basis.