Registration document 2007 - Total.com

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