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## 18. Derivatives 

The Group enters into derivative financial instruments (“derivatives”), including foreign currency forward contracts, currency swaps and currency options, or interest rate swaps, to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies or to hedge interest rate fluctuation risk. 

The Group also enters into derivatives, including commodity swap transactions to hedge raw material price fluctuation risk. It is the Company’s policy to use derivatives only for the purpose of reducing risks associated with fluctuations in currency exchange rates, interest rates and raw material prices and to reduce the cost of raising funds. The Group does not engage in derivative transactions for speculation purposes. 

Derivatives are subject to market risk, which is the exposure created by potential fluctuations in market conditions, including interest or foreign exchange rates. Because the counterparties to those derivatives are limited to major international financial institutions, the Company does not anticipate any losses arising from credit risk. 

Interest rate swap contracts, which are related to working assets or loans payable, are used to manage the risk of loss stemming from interest rate fluctuations that may affect the Group’s overall asset and liability structure. In addition, the Group uses interest rate swap con- tracts to reduce the cost of raising funds. 

As noted in Note 17, the Group applied ASBJ Statement No. 10, “Accounting Standard for Financial Instruments,” and ASBJ Guidance No. 19, “Guidance on Accounting Standard for Financial Instruments and Related Disclosures.” The accounting standard and the guidance are applicable to financial instruments and related disclosures at the end of the fiscal years ending on or after March 31, 2010; therefore, the required information is disclosed only for 2010. 

Commodity swap transactions are used to manage the risks associated with the fluctuation of raw material prices occurring within the scope of the Group’s ordinary procurement of raw materials. 

Execution and control of derivative transactions are carried out by the accounting and purchasing divisions of the relevant company. However, material transactions are executed on approval of the Board of Directors of each company, based on rules set forth by its board. The scope of execution authority and execution amount is based on each company’s administrative rules. The result of these transactions is reported each month to the directors of the Company as well. 

## Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2010 

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Note: Depending on the interest rate, fixed interest rate is exchanged for floating rate. 

The fair value of derivative transactions is measured at the quoted price obtained from the financial institution. 

