Item 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Company Excluding Ford Credit
Foreign Currency Risk. The net fair value of foreign exchange forward contracts (including adjustments for credit risk) as of March 31, 2023, was an asset of $253 million, compared with an asset of $236 million as of December 31, 2022. The potential change in the fair value from a 10% change in the underlying exchange rates, in U.S. dollar terms, would have been $2.7 billion at March 31, 2023, compared with $1.9 billion at December 31, 2022.
Commodity Price Risk. The net fair value of commodity forward contracts (including adjustments for credit risk) as of March 31, 2023, was a liability of $32 million, compared with a liability of $49 million at December 31, 2022. The potential change in the fair value from a 10% change in the underlying commodity prices would have been $193 million at March 31, 2023, compared with $178 million at December 31, 2022.
Ford Credit Segment
Interest Rate Risk . To provide a quantitative measure of the sensitivity of its pre-tax cash flow to changes in interest rates, Ford Credit uses interest rate scenarios that assume a hypothetical, instantaneous increase or decrease of one percentage point in all interest rates across all maturities (a “parallel shift”), as well as a base case that assumes that all interest rates remain constant at existing levels. Maturing assets and liabilities are also instantaneously reinvested, capturing 100% of any hypothetical change in interest rates. The differences in pre-tax cash flow between these scenarios and the base case over a 12-month period represent an estimate of the sensitivity of Ford Credit’s pre-tax cash flow . Under this model, Ford Credit estimates that at March 31, 2023, all else constant, such an increase in interest rates would increase its pre-tax cash flow by $73 million over the next 12 months, compared with an increase of $127 million at December 31, 2022 . In reality, new assets and liabilities may not immediately capture changes in interest rates, and interest rate changes are rarely instantaneous, parallel, or move exactly the one percentage point assumed in Ford Credit’s analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower than the results detailed above.
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