BASF Report 2021 Consoli dated Financial Statements – Notes 266 26.2 Financial risks €78 million applying 10% appreciation to the functional currency). ber 31, 2021, a change in interest rates would not have had an effect This only refers to transactions in U.S. dollars. on shareholders’ equity. There were also no interest derivatives Market risks designated in a hedge accounting relationship as of Decem- Exposure and sensitivity by currency ber 31, 2020. Foreign currency risks: Changes in exchange rates could lead to Million € losses in the value of financial instruments and adverse changes in December 31, 2021 December 31, 2020 Carrying amounts of nonderivative interest-bearing financial instruments future cash flows from planned transactions. Foreign currency risks Exposure Sensitivity Exposure Sensitivity Million € from financial instruments result from the translation at the closing +5% +10% +5% +10% December 31, 2021 December 31, 2020 rate of financial receivables, loans, securities, cash and financial USD 1,712 –128 –231 1,965 –101 –190 Fixed Variable Fixed Variable interest rate interest rate interest rate interest rate liabilities into the functional currency of the respective Group Other 1,011 –49 –94 1,117 –66 –123 company. Foreign currency contracts in various currencies are used Loans 109 129 75 115 Total 2,723 –177 –324 3,082 –167 –313 Securities 60 209 51 206 to hedge foreign exchange risks from nonderivative financial instruments and planned transactions. Financial 14,446 2,738 17,742 1,472 Due to the use of options to hedge currency risks, the sensitivity indebtedness The foreign currency risk exposure corresponds to the net amount analysis is not a linear function of the assumed changes in exchange of the nominal volume of the primary and the derivative financial rates. Nominal and fair values of combined interest rate and currency swaps instruments that are exposed to currency risks. In addition, planned Million € purchase and sales transactions of the respective following year are Interest rate risks: Interest rate risks arise from changes in pr evailing December 31, 2021 December 31, 2020 included if they fall under the currency risk management system. market interest rates, which can lead to changes in the fair value of Nominal Fair Nominal Fair value value value value Long and short positions in the same currency are offset against fixed-rate instruments and in interest payments for variable-rate each other. instruments. Interest rate swaps and combined interest rate and Combined interest rate and 4,183 102 4,183 –163 currency swaps currency derivatives are used in individual cases to hedge these of which fixed rate 4,183 102 4,183 –163 The sensitivity analysis was conducted by simulating a 5% and 10% risks. The derivatives are presented in Note 26.5. Interest rate risks appreciation of the respective functional currency against the other are relevant to BASF’s financing activities but are not of material currencies. A 5% appreciation of the respective functional currency significance for BASF’s operating activities. Central benchmark interest rates are being comprehensively revised would have reduced BASF’s income before income taxes by as part of what is known as the IBOR reform. Accordingly, the €174 million as of December 31, 2021. A 10% appreciation of the The variable interest risk exposure, which also includes fixed rate interest rates affected by the reform will be phased out and replaced respective functional currency would have resulted in a negative bonds maturing in the following year, amounted to –€2,408 million by new ones. The publication of all GBP, EUR, CHF and JPY LIBORs effect on BASF’s income before income taxes in the amount of as of December 31, 2021 (2020: –€1,659 million). An increase in all as well as USD LIBORs with maturities of one week and two months €326 million. A 5% appreciation of the respective functional curr ency relevant interest rates by one half of a percentage point would have was discontinued as of December 31, 2021. Publication of the resulted in an effect on BASF’s income in the amount of –€203 mil- lowered income before income taxes by €4 million as of remaining USD LIBORs is expected to continue until June 30, 2023. lion as of December 31, 2020 (–€390 million with a 10% apprecia- December 31, 2021. An increase in all relevant interest rates by one tion). The effect from the items designated under hedge accounting percentage point would have lowered income before income taxes BASF is continuously monitoring developments arising from the would have decreased shareholders’ equity before income taxes by by €9 million as of the same date. An increase in all relevant interest IBOR reform to ensure the timely adjustment of existing contracts as €3 million applying 5% appreciation to the functional currency, and rates by one half of a percentage point would have lowered income well as to identify potential financial risks at an early stage. Particular increased it by €2 million applying 10% appreciation to the functional before income taxes by €5 million as of December 31, 2020 (an consideration is given to the carrying amounts or nominal values currency as of December 31, 2021 (2020: increase of €36 million increase of one percentage point would have lowered income before (derivatives) of contracts that reference an interest rate affected by applying 5% appreciation to the functional currency and increase of income taxes by €10 million). Because no interest derivatives were the reform and therefore may still have to be converted to an designated in hedge accounting relationships as of Decem- alternative interest rate (contracts yet to be adjusted). As of