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Payment terms of payables, such as trade notes and trade accounts, as well as of corporate tax payables, are less than one year. 

Bank loans and straight bonds are financing for business opera- tions, capital expenditures and other investments and loans. Although a part of such bank loans are exposed to market risks from changes in variable interest rates, those risks are mitigated by using interest-rate swaps. 

Derivatives mainly include forward foreign currency contracts, interest-rate swaps, currency option swaps, interest-rate currency swaps and commodity swaps. Please see Note 18 for more detail about derivatives. 

## (3) Risk Management for Financial Instruments Credit risk management 

Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring the payment terms and balances of customers to identify the default risk of customers at an early stage. Trade conditions are revised or receivables are preserved as the necessity arises. Debt securities managing cash surpluses are low risk financial instruments. These investments are based on the internal fund management guidelines. The Group monitors such information as the financial positions of the associ- ated companies to whom it lends funds. Please see Note 18 for the detail about derivatives. 

## Market risk management (interest rate risk) 

Interest-rate swaps are used to manage exposure to market risks from changes in interest rates of loan payables and bond payables. 

Marketable and investment securities traded on the stock market are managed by monitoring market values on a regular basis and reported to the officers of the Company. Marketable and investment securities that are not traded on the stock exchange, mainly equity instruments of the companies that have a business relationship with the Group, are managed by monitoring their finan- cial positions on a regular basis. 

Derivative transactions are only traded between high credit rating financial institutions, and financial and accounting divisions of consolidated subsidiaries and the Group’s procurement division. Important derivative transactions are decided and managed by management, through meeting regulations and internal guidelines of each consolidated subsidiary. The transaction data has been reported to the officers of the Company on a monthly basis. 

## (4) Fair Values of Financial Instruments 

Fair values of financial instruments are based on a quoted price in active markets. If a quoted price is not available, other rational valuation techniques are used instead. Also please see Note 18 for the detail of fair value for derivatives. 

Fair value of financial instruments for which a quoted market price is not available, is calculated based on certain assumptions and the fair value might differ if difficult assumptions are used. 

## (a) Fair value of financial instruments 

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Notes: a. Allowance for bad debts is deducted from receivables. 

b. Long-term loans include loans to unconsolidated subsidiaries and associated companies. 

c. Long-term loans include those to be collected within a year. 

d. Long-term debt include those to be paid within a year. 

e. Liabilities recorded due to the derivative transactions are shown as net. ( ) denotes net liabilities. 

