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liabilities . If the market interest rates had been 100 basis points higher (lower) at December 31, 2006,
shareholders' equity would have been EUR 27 million higher (lower).
Other price risks
As part of the presentation of market risks, IFRS 7 also requires disclosures on how hypothetical
changes in risk variables affect the price of financial instruments. Important risk variables are stock ex–
change prices or indices.
As of December 31, 2006, Deutsche Telekom did not hold any material investments to be classified
as "available-far-sale."
Credit risks
Deutsche Telekom is exposed to credit risk from its operating activities and certain financing activi–
ties. With regard to financing activities, transaction s are only concluded with conterparties that have at
least a credit rating of BBB+/Baa I, in connection with an operational management system. At the level
of operations, the outstanding debts are continuously monitored in each area (i.e., locally). Credit risks
must be taken into account through individual and collective impairments.
In the course of ABS transactions, receivables from the bulk business are managed separately . A
security margin is provided as a cash reserve for the credit risk. The percentage of the provision for the
credit risk has been statistically proven to be stable. A statement of the actual loan losses is prepared pe–
riodically and any excess payments to the cash reserve are refunded.
The solvency of the business with key accounts, in particular international carriers, is monitored
separately. In terms of the overall risk exposure from credit risk, however, the receivables from these
counterparties are not so extensive as to justify extraordinary concentrations of risk.
The maximum exposure to credit risk is partly represented by the carrying amounts of the financial
assets that are carried in the balance sheet, including derivatives with positive market values. Except for
the collateral agreements mentioned in Note 24, no significant agreements reducing the maximum expo–
sure to credit risk (such as contractual netting) had been concluded as of the reporting date. In addition,
Deutsche Telekom is exposed to credit risk through the granting of financial guarantees. Guarantees
amounting to a nominal total ofEUR 216 million had been pledged as ofthe reporting date.
5.2 HSBC HOLDING pIc, Annual Report 2006
Market risk management
(Audited)
The objective of HSBC's market risk management is to manage and control market risk exposures
in order to optimise return on risk while maintaining a market profile consistent with the Group 's status
as a premier provider of financial products and services.
Market risk is the risk that movements in market risk factors, including foreign exchange rates and
commodity prices, interest rates, credit spreads and equity prices will reduce HSBC's income or the
value of its portfolios. Credit risk is discussed separately in the Credit risk section on page 171.
HSBC separates exposures to market risk into either trading or nontrading portfolios. Trading port–
folios include those positions arising from market-making , proprietary position-taking and other marked–
to-market positions so designated. The contribution of the marked-to-market positions so designated but
not held with trading intent is disclosed separately.
Nontrading portfolios primarily arise from the interest rate management of HSBC's retail and
commercial banking assets and liabilities.
The management of market risk is principally undertaken in Global Markets using risk limits ap–
proved by the Group Management Board. Limits are set for portfolios, products, and risk types, with
market liquidity being a principal factor in determining the level of limits set. Traded Credit and Market
Risk, an independent unit within Corporate, Investment Banking and Markets, develops the Group's
market risk management policies and measurement techniques . Each major operating entity has an in–
dependent market risk control function which is responsible for measuring market risk exposures in ac–
cordance with the policies defined by Traded Credit and Market Risk, and monitoring and reporting
these exposures against the prescribed limits on a daily basis.
Each operating entity is required to assess the market risks which arise on each product in its busi–
ness and to transfer these risks to either its local Global Markets unit far management, or to separate
books managed under the supervision of the local Asset and Liability Management Committee
("ALCO"). The aim is to ensure that all market risks are consolidated within operations which have the
necessary skills, tools, management and governance to manage such risks professionally.