In its operations, the Volvo Group is exposed to various types of financial risks. Group-wide policies, which are updated and decided upon annually, form the basis of each Group company’s management of these risks. The objectives of the Group’s policies for management of financial risks are to optimize the Group’s capital costs by utilizing economies of scale, to minimize negative effects on income as a result of changes in currency or interest rates, to optimize risk exposure and to clarify areas of responsibility. Monitoring and control that established policies are adhered to is continuously conducted. Information about key aspects of the Group's system for internal constrols and risk management in conjunction with the financial reporting is provided in the Corporate Governance Report. Most of the Volvo Group’s financial transactions are carried out through Volvo’s in-house bank, Volvo Treasury, that conducts its operations within established risk mandates and limits. Credit risks are mainly managed by the different business areas.
The nature of the various financial risks and objectives and the policies for the management of these risks are described in detail in notes 36 and 37. Various aspects of financial risk are described briefly in the following paragraphs. Volvo’s accounting policies for financial instruments are described in note 1. The overall impact on a company's competitiveness is also affected however by how various macro-economic factors interact.
More than 90% of the net sales of the Volvo Group are generated in countries other than Sweden. Changes in exchange rates have a direct impact on the Volvo Group’s operating income, balance sheet and cash flow, as well as an indirect impact on Volvo’s competitiveness, which over time affects the Group’s earnings.
Interest-related risk includes risks that changes in interest rates will impact the Group’s income and cash flow (cash-flow risks) or the fair value of financial assets and liabilities (price risks).
Market risk from investments in shares or similar instruments
The Volvo Group is indirectly exposed to market risks from shares and other similar instruments, as a result of managed capital transferred to independent pension plans being partly invested in instruments of these types.
An important part of the Group's credit risk is related to how the financial assets of the Group have been placed. The majority are placed in Swedish Government bonds and interest-bearing bonds issued by Swedish real estate financing institutions.
Volvo ensures its financial preparedness by always maintaining a certain portion of revenues in liquid assets.