Registration document 2007 - Total.com
Registration document 2007 - Total.com
Registration document 2007 - Total.com
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The Group has implemented strict policies and procedures to<br />
manage and monitor these market risks. These are based on an<br />
organization that separates supervisory functions from<br />
operational functions and on an integrated information system<br />
that enables real-time monitoring of trading activities.<br />
Limits on trading positions are approved by the Group’s<br />
Executive Committee and are monitored daily. To increase<br />
flexibility and encourage liquidity, hedging operations are<br />
performed with numerous independent operators, including other<br />
oil <strong>com</strong>panies, major energy producers and consumers and<br />
financial institutions. The Group has established counterparty<br />
limits and monitors amounts outstanding with each counterparty<br />
on an ongoing basis.<br />
Financial markets related risks<br />
As part of its financing and cash management activities, the<br />
Group uses derivative instruments to manage its exposure to<br />
changes in interest rates and foreign exchange rates. These<br />
instruments are principally interest rate and currency swaps.<br />
The Group may also use, on a less frequent basis, futures, caps,<br />
floors and options contracts. These operations and their<br />
accounting treatment are detailed in notes 1 paragraph M, 20<br />
and 27 to the consolidated financial statements.<br />
Risks relative to cash management activities and to interest rate<br />
and foreign exchange financial instruments are managed in<br />
accordance with rules set by the Group’s senior management.<br />
Liquidity positions and the management of financial instruments<br />
are centralized by the treasury/financing department, where they<br />
are managed by a group specialized in foreign exchange and<br />
interest rate market transactions. The cash monitoring and<br />
management group monitors limits and positions on a daily basis<br />
and reports results. This group also prepares marked-to-market<br />
valuations and, as necessary, performs sensitivity analysis.<br />
Currency exposure<br />
The Group seeks to minimize the currency exposure of each<br />
entity to its operating currency (primarily the euro, dollar, pound<br />
sterling, and Norwegian krone).<br />
Risk Factors<br />
Market risks<br />
For currency exposure generated by <strong>com</strong>mercial activity, the<br />
hedging of revenues and costs in foreign currencies is typically<br />
performed using currency operations on the spot market and in<br />
some cases on the forward market. The Group rarely hedges<br />
future cash flows, although it may use options to do so.<br />
With respect to currency exposure linked to non-current assets<br />
booked in a currency other than the euro, the Group has a policy<br />
of reducing the related currency exposure by financing these<br />
assets in the same currency.<br />
Net short-term currency exposure is periodically monitored<br />
against limits set by the Group’s senior management. This<br />
currency exposure is managed by the Group’s central treasury<br />
entities, which are responsible for debt issuances on the financial<br />
markets (the proceeds of which are then loaned to borrowing<br />
subsidiaries), cash centralization for Group <strong>com</strong>panies and cash<br />
management on the monetary markets.<br />
Short-term interest rate exposure and cash<br />
Cash balances, which are primarily <strong>com</strong>posed of euros and<br />
dollars, are managed according to the guidelines established by<br />
senior management (maintain maximum liquidity, optimize<br />
revenue from investments considering existing interest rate yield<br />
curves, and minimize the cost of borrowing) over a less than<br />
twelve-month horizon and on the basis of a daily interest rate<br />
benchmark, primarily through short-term interest rate swaps and<br />
short-term currency swaps, without modifying the currency<br />
exposure.<br />
Interest rate risk on non-current debt<br />
4<br />
The Group’s policy consists of incurring non-current debt<br />
primarily at a floating rate, or at a fixed rate depending on the<br />
level of interest rates, in dollars or in euros according to general<br />
corporate needs. Long-term interest rate and currency swaps<br />
can hedge debenture loans at their issuance in order to create a<br />
variable rate synthetic debt. In order to partially modify the<br />
interest rate structure of the long-term debt, TOTAL can also<br />
enter into long-term interest rate swaps.<br />
TOTAL – <strong>Registration</strong> Document 2006 77