FINANCIAL SECTION
Nissan Annual Report 2004 89
Thousands of U.S. dollars
Due in Due after one Due after five
one year or year through years through Due after 
Fiscal year 2004 (As of Mar. 31, 2005) less five years ten years ten years
Government bonds.............................................................................................................................................................. $ 187 $ 0 $ 0 $0
Corporate bonds................................................................................................................................................................... 1,374 0 505 0
Others............................................................................................................................................................................................ 03 7 0 0
Total................................................................................................................................................................................................. $1,561 $37 $505 $0
20. DERIVATIVE TRANSACTIONS
Hedging Policies
The Company and its consolidated subsidiaries (collectively, the
“Group”) utilize derivative transactions for the purpose of hedging
their exposure to fluctuation in foreign exchange rates, interest rates
and market prices. However, based on an internal management rule
on financial market risk (the “Rule”) approved by the Company’s
Board of Directors, they do not enter into transactions involving
derivatives for speculative purposes. The Rule prescribes that (i) the
Group’s financial market risk is to be controlled by the Company in a
centralized manner, and that (ii) no individual subsidiary can initiate a
hedge position without the prior approval of, and regular reporting
back to the Company.
Risk to be hedged by derivative transactions
(1) Market risk
The financial market risk to which the Group is generally exposed in
its operations and the relevant derivative transactions primarily used
for hedging are summarized as follows:
• Foreign exchange risk associated with assets and liabilities
denominated in foreign currencies; forward foreign exchange
contracts, foreign currency options, and currency swaps;
• Interest rate risk associated with sourcing funds and investing:
interest-rate swaps;
• Risk of fluctuation in stock prices: options on stocks;
• Risk of fluctuation in commodity prices (mainly for precious metals):
commodity futures contracts
(2) Credit risk
The Group is exposed to the risk that a counterparty to its financial
transactions could default and jeopardize future profits. We believe
that this risk is insignificant as the Group enters into derivative
transactions only with financial institutions which have a sound credit
profile. The Group enters into these transactions also with Renault
Finance S.A. (“RF”), a specialized financial subsidiary of the Renault
Group which, we believe, is not subject to any such material risk. This
is because RF enters into derivative transactions to cover such
derivative transactions with us only with financial institutions of the
highest caliber carefully selected by RF based on its own rating
system which takes into account each counterparty’s long-term credit
rating and shareholders’ equity.
(3) Legal risk
The Group is exposed to the risk of entering into a financial
agreement which may contain inappropriate terms and conditions as
well as the risk that an existing contract may be affected by revisions
to the relevant laws and regulations. The Company’s Legal
Department and Finance Department make every effort to minimize
legal risk by reviewing any new agreements of significance and by
reviewing the related documents in a centralized way.
Risk Management
All strategies to manage financial market risk and risk hedge
operations of the Group are carried out pursuant to the Rule which
stipulates the Group’s basic policies for derivative transactions,