36 Financial instruments and risk management

Carrying amounts, amounts recognized, and fair values by class and measurement category
millions of €     Amounts recognized in the statement of financial position
in accordance with IAS 39
        Amounts recognized in the statement of financial position
in accordance with IAS 39
   
  Category
in accordance
 with IAS 39
Carrying amounts
Dec. 31, 2017
Amortized cost Cost Fair value recognized in
 equity
Fair value recognized in
 profit or loss
Amounts recognized in
the statement
of financial position in accordance
with IAS 17
Fair value Dec. 31, 2017 d Category in accordance
with IAS 39
Carrying
amounts Dec. 31, 2016
Amortized cost Cost Fair value recognized in
 equity
Fair value recognized in
 profit or loss
Amounts recognized in the statement of financial position in accordance with IAS 17 Fair value
Dec. 31, 2016 d
Assets                                
Cash and cash equivalents LaR 3,312 3,312           LaR 7,747 7,747        
Trade receivables LaR 9,553 9,553           LaR 9,179 9,179        
Originated loans and receivables LaR/n a. 3,507 3,354       153 3,539 LaR/n. a. 5,664 5,482       182 5,701
Of which: collateral paid LaR 504 504           LaR 235 235        
Other non-derivative financial assets                                
Held-to-maturity investments HtM 5 5           HtM 8 8        
Available-for-sale financial assets a AfS 4,216   187 4,029     4,029 AfS 5,548   126 5,422     5,422
Derivative financial assets b                                
Derivatives without a hedging relationship FAHfT 1,103       1,103   1,103 FAHfT 1,881       1,881   1,881
Of which: termination rights embedded in bonds issued FAHfT 351       351   351 FAHfT 915       915   915
Of which: energy forward agreements embedded in renewable energy purchase agreements FAHfT             FAHfT          
Derivatives with a hedging relationship n. a. 214     42 172   214 n. a. 498     268 230   498
Liabilities c                                
Trade payables FLAC 10,934 10,934           FLAC 10,388 10,388        
Bonds and other securitized liabilities FLAC 45,453 45,453         50,472 FLAC 50,090 50,090         55,547
Liabilities to banks FLAC 4,974 4,974         5,062 FLAC 4,097 4,097         4,186
Liabilities to non-banks from promissory notes FLAC 480 480         582 FLAC 535 535         662
Liabilities with the right of creditors to priority repayment in the event of default FLAC         FLAC 1,866 1,866         1,921
Other interest-bearing liabilities FLAC 1,598 1,598         1,629 FLAC 1,823 1,823         1,859
Of which: collateral received FLAC 569 569         FLAC 829 829        
Other non-interest-bearing liabilities FLAC 1,443 1,443         FLAC 1,958 1,958        
Finance lease liabilities n. a. 2,635 2,635       2,635 2,893 n. a. 2,547         2,547 2,852
Derivative financial liabilities b                                
Derivatives without a hedging relationship FLHfT 337       337   337 FLHfT 1,607       1,607   1,607
Of which: conversion rights embedded in Mandatory Convertible Preferred Stock FLHfT           FLHfT 837       837   837
Of which: options granted to third parties for the purchase of shares in subsidiaries and associates FLHfT 10       10   10 FLHfT          
Of which: energy forward agreements embedded in renewable energy purchase agreements FLHfT 46       46   46 FLHfT          
Derivatives with a hedging relationship n. a. 609     168 441   609 n. a. 127     48 79   127
Derivative financial liabilities directly associated with non-current assets and disposal groups held for sale FLHfT           FLHfT 50       50   50
Of which: aggregated by category in accordance with IAS 39                                
Loans and receivables LaR 16,219 16,219         3,386 LaR 22,408 22,408         5,519
Held-to-maturity investments HtM 5 5         HtM 8 8        
Available-for-sale financial assets a AfS 4,216   187 4,029     4,029 AfS 5,548   126 5,422     5,422
Financial assets held for trading FAHfT 1,103       1,103   1,103 FAHfT 1,881       1,881   1,881
Financial liabilities measured at amortized cost FLAC 64,882 64,882         57,745 FLAC 70,757 70,757         64,175
Financial liabilities held for trading FLHfT 337       337   337 FLHfT 1,657       1,657   1,657
 
a For details, please refer to Note 8 “Other financial assets”.
b For details, please refer to the derivatives table in this Note.
c For financial guarantees and loan commitments existing at the reporting date, please refer to the additional information provided in this section.
d The exemption provisions under IFRS 7.29a were applied for information on specific fair values.

Trade receivables include receivables amounting to EUR 1.6 billion (December 31, 2016: EUR 1.5 billion) due in more than one year. The fair value generally equals the carrying amount.

Financial instruments not measured at fair value, the fair values of which are disclosed nevertheless

millions of €
  Dec. 31, 2017 Dec. 31, 2016
  Level 1
Inputs as prices in active markets
Level 2
Other inputs that are directly or indirectly observable
Level 3
Inputs that are unobservable a
Total Level 1
 Inputs as prices in active markets
Level 2
Other inputs that are directly or indirectly observable
Level 3
Inputs that are unobservable
Total
Assets                
Originated loans and receivables   3,539   3,539   5,701   5,701
                 
Liabilities                
Financial liabilities measured at amortized cost (FLAC) 41,233 16,161 351 57,745 49,043 15,054 78 64,175
Of which: bonds and other securitized liabilities 41,233 8,888 351 50,472 49,043 6,426 78 55,547
Of which: liabilities to banks   5,062   5,062   4,186   4,186
Of which: liabilities to non-banks from promissory notes   582   582   662   662
Of which: liabilities with the right of creditors to priority repayment in the event of default       1,921   1,921
Of which: other interest-bearing liabilities   1,629   1,629   1,859   1,859
Finance lease liabilities   2,893   2,893   2,852   2,852
                 
a Separation of embedded derivatives; the fair value of the entire instrument must be categorized as Level 1.

Financial instruments measured at fair value

millions of €
  Dec. 31, 2017 Dec. 31, 2016
  Level 1
Inputs as
prices in
active markets
Level 2
Other inputs that are directly or indirectly observable
Level 3
Inputs that are unobservable
Total Level 1
Inputs as prices in active markets
Level 2
Other inputs that are directly or indirectly observable
Level 3
Inputs that are unobservable
Tota
                 
Assets                
Available-for-sale financial assets (AfS) 3,752   277 4,029 5,212   210 5,422
Financial assets held for trading (FAHfT)   752 351 1,103   966 915 1,881
Derivative financial assets with a hedging relationship   214   214   498   498
                 
Liabilities                
Financial liabilities held for trading (FLHfT)   281 56 337   770 887 1,657
Derivative financial liabilities with a hedging relationship   609   609   127   127

Of the available-for-sale financial assets (AfS) presented under other non-derivative financial assets, the instruments presented in the different levels constitute separate classes of financial instruments. In each case, the fair values of the total volume of instruments recognized as Level 1 are the price quotations at the reporting date. The total volume of instruments recognized as Level 1 in the amount of EUR 3,752 million (December 31, 2016: EUR 5,212 million) comprises a strategic financial stake of 12 percent in BT with a carrying amount equivalent to around EUR 3.7 billion (prior year: EUR 5.1 billion). In 2017, impairments of this financial stake equivalent to around EUR 1.5 billion were recognized in profit or loss. The impairment covers the entire decline in fair value in the reporting period and includes both the share price effect and the exchange rate effect up to December 31, 2017. The financial stake will continue to be measured at the current share value translated into euros. Under IFRS 9, future changes in value will be recognized in full (i.e., share price effect and exchange rate effect) directly in the consolidated income statement.

Development of the carrying amounts of the financial assets and financial liabilities assigned to Level 3
millions of €          
  Available-for-sale
financial assets
(AfS)
Financial assets held for trading (FAHfT): Early redemption options embedded in bonds Financial assets held for trading (FAHfT): energy forward agreements embedded in renewable energy purchase agreements Financial liabilities held for trading (FLHfT): Conversion rights embedded in Mandatory Convertible Preferred Stock Financial liabilities held for trading (FLHfT): energy forward agreements embedded in renewable energy purchase agreements
Carrying amount as of January 1, 2017 210 915 (837)
Additions (including first-time categorization as Level 3) 101 16 0 0
Value decreases recognized in profit/loss (including losses on disposal) (43) (311) (3) (246) (50)
Value increases recognized in profit/loss (including gains on disposal) 17 152 3 117 4
Value decreases recognized directly in equity (50)
Value increases recognized directly in equity 70
Disposals (28) (353) 864
Currency translation effects recognized directly in equity (68) 0 102 0
Carrying amount as of December 31, 2017 277 351 0 0 (46)

The available-for-sale financial assets assigned to Level 3 that are carried ­under other non-derivative financial assets are equity investments with a ­carrying amount of EUR 277 million measured using the best information ­available at the reporting date. As a rule, Deutsche Telekom considers ­transactions involving shares in those companies to have the greatest ­relevance. ­Transactions involving shares in comparable companies are also considered. The closeness of the transaction in question to the reporting date and the question of whether the transaction was at arm’s length are relevant for the decision on which information will ultimately be used for the measurement. Furthermore, the degree of similarity between the object being measured and comparable companies must be taken into consideration. Based on Deutsche Telekom’s own assessment, the fair values of the equity investments at the reporting date could be determined with sufficient ­reliability. In the case of investments with a carrying amount of EUR 180 million, transactions involving shares in these companies took place at arm’s length sufficiently close to the reporting date, which is why the share prices agreed in the transactions were to be used without adjustment for the measurement as of December 31, 2017. In the case of investments with a carrying amount of EUR 28 million, although the last arm’s length transactions relating to shares in these companies took place some time ago, based on the analysis of operational development (in particular revenue, EBIT, and liquidity), the previous carrying amount nevertheless corresponds to the fair value and, due to limited comparability, is preferable to measurement on the basis of transactions executed more recently relating to shares in comparable companies. In the case of investments with a carrying amount of EUR 69 million, for which the last arm’s length transactions relating to shares in these companies took place some time ago, measurement executed more recently relating to shares in comparable companies provides the most reliable representation of the fair values. Here, multiples to the reference variable of net revenue (ranging between 0.9 and 5.4) were taken, using the respective median. In certain cases, due to specific circumstances, valuation discounts need to be applied to the respective multiples. If the value of the respective 2/3-quantile (1/3-quantile) had been used as a multiple with no change in the reference variables, the fair value of the investments at the reporting date would have been EUR 27 million higher (EUR 15 million lower). If the reference variables had been 10 percent higher (lower) with no change in the multiples, the fair value of the ­investments at the reporting date would have been EUR 6 million higher (EUR 6 million lower). In the reporting period, net expense of EUR 43 million was recognized in other financial income/expense for unrealized losses for the investments in the portfolio at the reporting date. Please refer to the table above for the development of the carrying amounts in the reporting period. No plans existed as of the reporting date to sell these investments.

The listed bonds and other securitized liabilities are assigned to Level 1 or Level 2 depending on the market liquidity of the relevant instrument. As a rule, issues denominated in euros or U.S. dollars with relatively large nominal amounts are to be classified as Level 1, the rest as Level 2. The fair values of the instruments assigned to Level 1 equal the nominal amounts multiplied by the price quotations at the reporting date. The fair values of the instruments assigned to Level 2 are calculated as the present values of the payments associated with the debts, based on the applicable yield curve and Deutsche Telekom’s credit spread curve for specific currencies.

The fair values of liabilities to banks, liabilities to non-banks from ­promissory notes, other interest-bearing liabilities, and finance lease liabilities are ­calculated as the present values of the payments associated with the debts, based on the applicable yield curve and Deutsche Telekom’s credit spread curve for specific currencies.

Since there are no market prices available for the derivative financial instruments in the portfolio assigned to Level 2 due to the fact that they are not listed on the market, the fair values are calculated using standard financial valuation models, based entirely on observable inputs. The fair value of derivatives is the value that Deutsche Telekom would receive or have to pay if the financial instrument were transferred at the reporting date. Interest rates of contractual partners relevant as of the reporting date are used in this respect. The middle rates applicable as of the reporting date are used as exchange rates. In the case of interest-bearing derivatives, a distinction is made between the clean price and the dirty price. In contrast to the clean price, the dirty price also includes the interest accrued. The fair values carried correspond to the full fair value or the dirty price.

The financial assets held for trading assigned to Level 3 that are carried under other derivative financial assets relate to options embedded in bonds issued by T-Mobile US with a carrying amount of EUR 351 million when translated into euros. The options, which can be exercised by T-Mobile US at any time, allow early redemption of the bonds at fixed exercise prices. Observable market prices are available regularly and also at the reporting date for the bonds as entire instruments, but not for the options embedded therein. The termination rights were measured using an option pricing ­model. Historical interest rate volatilities of bonds issued by T-Mobile US and comparable issuers are used for the measurement because these provide a more reliable estimate for these unobservable inputs at the reporting date than current market interest rate volatilities. The absolute figure used for the interest rate volatility at the current reporting date was between 0.9 and 1.1 percent. The significant decline in this value compared with the prior year is mainly attributable to the improvement in the rating of T - Mobile US in the reporting period. The spread curve, which is also unobservable, was derived on the basis of current market prices of bonds issued by T-Mobile US and debt instruments of comparable issuers. The spreads used at the current reporting date were between 2.2 and 2.5 percent for the maturities of the bonds and between 0.7 and 1.8 percent for shorter terms. In Deutsche Telekom’s opinion, 10 percent constituted the best estimate for the mean reversion, another unobservable input. If 10 percent higher (lower) interest rate volatilities in absolute terms had been used for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the options from T-Mobile US’ perspective would have been EUR 19 million higher (EUR 4 million lower) when translated into euros. If spreads of 100 basis points higher (lower) had been used for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the options from T-Mobile US’ perspective would have been EUR 184 million lower (EUR 259 million higher) when translated into euros. If a mean reversion of 100 basis points higher (lower) had been used for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the options from T-Mobile US’ perspective would have been EUR 4 million higher (EUR 7 million higher) when translated into euros. In the reporting period, a net expense of EUR 9 million when translated into euros was recognized under the Level 3 measurement in other financial income/expense for unrealized losses for the options in the portfolio at the reporting date. In the reporting period, several options were exercised and the relevant bonds canceled prematurely. At the time of termination, the options and their total carrying amount of EUR 353 million when translated into euros were expensed and derecognized. Please refer to the table for the development of the carrying amounts in the reporting period. The changes in value recognized in profit or loss in the reporting period were mainly attributable to fluctuations in the interest rates and historical interest rate volatilities in absolute terms that are relevant for measurement. Due to their distinctiveness, these instruments constitute a separate class of financial instruments.

With a carrying amount of EUR 46 million when translated into euros, the financial liabilities held for trading assigned to Level 3 that are carried under derivative financial liabilities relate to energy forward agreements embedded in renewable energy purchase agreements entered into by T-Mobile US. Each renewable energy purchase agreement consists of two components: the energy forward agreement and the acquisition of renewable energy certificates by T-Mobile US. The agreements were entered into with energy producers in 2017 and will run for terms of between 12 and 15 years from the commencement of commercial operation. For one energy forward agreement, commercial operations began at the end of 2017, for another, they are set to begin at the end of 2018. The respective settlement period of the energy forward agreement, which is accounted for separately as a derivative, also starts when the facility begins commercial operation. Under the energy forward agreements, T-Mobile US receives variable amounts based on the facility’s actual energy output and the then current energy prices, and pays fixed amounts per unit of energy generated throughout the term of the contract. The energy forward agreements are measured using valuation models because no observable market prices are available. The value of the derivative is significantly influenced by the facility’s future energy output, for which T - Mobile US estimated a value of 1,314 gigawatt hours per year at the reporting date. The value of the derivatives is also significantly influenced by future energy prices, which are not observable for the period beyond five years. Further, the value of the derivatives is ­significantly influenced by the future prices for renewable energy certificates, which are also not observable. For the unobservable portion of the term, T - Mobile US used on-peak energy prices between EUR 20.08/MWh and EUR 33.15/MWh when translated into euros and off-peak prices between EUR 15.51/MWh and EUR 22.83/MWh when translated into euros. An ­average off-peak/on-peak ratio of 57 percent was used. If 10 percent higher (lower) future energy prices had been used for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the derivatives from T-Mobile US’ perspective would have been EUR 27 million higher (EUR 27 million lower) when translated into euros. If a 5 percent higher (lower) future energy output had been used for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the derivatives from T-Mobile US’ perspective would have been EUR 6 million higher (EUR 6 million lower) when translated into euros. If the future prices for renewable energy certificates had been doubled for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the derivatives from T-Mobile US’ perspective would have been EUR 6 million higher when translated into euros. If the future prices for renewable energy certificates had been set to zero for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the derivative from T-Mobile US’ perspective would have been ­EUR 6 million lower when translated into euros. If spreads of 100 basis points higher (lower) had been used for the measurement at the reporting date, with otherwise unchanged parameters, the fair value of the derivatives from T-Mobile US’ perspective would have been EUR 4 million lower (EUR 5 million higher) when translated into euros. In the reporting period, a net expense of EUR 46 million (when translated into euros) was recognized under the Level 3 measurement in other operating income/expense for unrealized losses for the derivatives. Please refer to the table for the development of the carrying amounts in the reporting period. The market-price changes are largely attributable to changes in observable and unobservable energy prices. As of June 30, 2017, the value of the portfolio was still slightly positive from Deutsche Telekom’s perspective (carrying amount EUR 3 million), which is why it had to be disclosed as an asset. Due to their distinctiveness, these instruments constitute a separate class of financial instruments. Measurement of the derivatives on initial recognition resulted in a positive value from T-Mobile US’ perspective of EUR 112 million when translated into euros. In the view of T-Mobile US, the contracts were entered into at current market conditions, and the most appropriate parameters for the unobservable inputs were used for measurement purposes. The transaction price at inception was zero in each case. Since the unobservable inputs have a material influence on the measurement of the derivatives, the respective amount resulting from initial measurement was not carried on initial recognition. Instead, these amounts are amortized in profit or loss on a straight-line basis over the period of commercial energy generation (for a total amount of EUR 8 million per year when translated into euros). This amortization adjusts the effects from measuring the derivatives in each accounting period using the respective valuation models and updated parameters. All amounts from the measurement of the derivatives are presented in net terms in the statement of financial position (other derivative financial assets/liabilities) and in the income statement (other operating income/expenses). The difference yet to be amortized in the income statement developed as follows during the reporting period:

Energy forward agreements: development of the not-yet-amortized measurement amounts on initial recognition
millions of €
   
Measurement amount on initial recognition 112
Measurement amounts amortized in profit or loss in the current reporting period
Currency translation adjustments (5)
Measurement amounts not amortized as of Dec. 31, 2017 107

The financial liabilities held for trading assigned to Level 3 that are ­presented under financial liabilities include derivative financial liabilities with a ­carrying amount of EUR 10 million resulting from an option granted to third ­parties in the reporting period for the purchase of shares in an associate of Deutsche Telekom. The option was granted in connection with a sale of shares in this associate, and no notable fluctuations in value are expected. Due to its distinctiveness, this instrument constitutes a separate class of financial instruments.

Until December 2017, the financial liabilities held for trading assigned to Level 3 that are presented under financial liabilities included conversion rights embedded in the Mandatory Convertible Preferred Stock issued by T-Mobile US. The Mandatory Convertible Preferred Stock was converted into ordinary shares in T-Mobile US on the maturity date in  2017 as planned. The embedded conversion rights were recognized for a final time on their maturity date through profit or loss in the consolidated income statement and were then derecognized with no effect on the income statement as part of the share issue.

As of December 31, 2016, the financial liabilities assigned to Level 3 ­included derivative financial liabilities with a carrying amount of EUR 50 million resulting from an option granted to third parties in the 2015 financial year for the purchase of shares in a subsidiary of Deutsche Telekom. Due to its distinctiveness, this instrument constituted a separate class of financial instruments. It was reported under derivative financial liabilities directly associated with non-current assets and disposal groups held for sale. The exercise period came to an end during the reporting period and the option was exercised in full. It was derecognized and the carrying amount transferred to the income statement on completion of the sale.

Net gain/loss by measurement category
millions of €              
  Recognized in profit or loss
from interest, dividends
Recognized in profit or loss from subsequent
measurement
Recognized directly in equity from
subsequent measurement
Recognized in profit or loss
from
derecognition
Net gain (loss)
    At fair value Currency translation Impairments/
allowances
At fair value   2017
Loans and receivables (LaR) 31   (3,152) (581)     (3,702)
Held-to-maturity investments (HtM)          
Available-for-sale financial assets (AfS) 224     (1,514) 34 16 (1,240)
Financial instruments held for trading (FAHfT and FLHfT) n. a. (632)         (632)
Financial liabilities measured at amortized cost (FLAC) (2,186)   2,981       795
  (1,931) (632) (171) (2,095) 34 16 (4,779)
millions of €
               
  Recognized in profit or loss
from interest, dividends
Recognized in profit or loss from subsequent
measurement
Recognized directly in equity from
subsequent measurement
Recognized in profit or loss
from
derecognition
Net gain (loss)
    At fair value Currency translation Impairments/
allowances
At fair value   2016
Loans and receivables (LaR) 25   183 (687)   2 (477)
Held-to-maturity investments (HtM)          
Available-for-sale financial assets (AfS) 220     (2,282) (41) 20 (2,083)
Financial instruments held for trading (FAHfT and FLHfT) n. a. 27         27
Financial liabilities measured at amortized cost (FLAC) (2,449)   (149)       (2,598)
  (2,204) 27 34 (2,969) (41) 22 (5,131)

Interest from financial instruments is recognized in finance costs, dividends in other financial income/expense (please also refer to Note 23 “Finance costs,” and Note 25 “Other financial income/expense”. The other components of the net gain/loss are recognized in other financial income/expense, except for allowances on trade receivables (please also refer to Note 2 “Trade and other receivables”) that are classified as loans and receivables, which are reported under other operating expenses. The net loss from the subsequent measurement for financial instruments held for trading (EUR 632 million) also includes interest and currency translation effects. The currency translation losses on financial assets classified as loans and receivables (EUR 3,152 million) are primarily attributable to the Group-internal transfer of foreign-currency loans taken out by Deutsche Telekom’s financing company, Deutsche Telekom International Finance B.V., on the capital market. These were offset by corresponding currency translation gains on capital market liabilities of EUR 2,981 million. These include currency translation losses from derivatives that Deutsche Telekom used as hedges for hedge accounting in foreign currency (EUR 544 million; 2016: currency translation losses of EUR 98 million). Finance costs from financial liabilities measured at amortized cost (expense of EUR 2,186 ­million) primarily consist of interest expense on bonds and other (securitized) ­financial liabilities. The item also includes interest expenses from interest added back and interest income from interest discounted from trade payables. However, it does not include the interest expense and interest income from interest rate derivatives Deutsche Telekom used in the reporting period to hedge the fair value risk of financial liabilities (please also refer to Note 23 “Finance costs”).

Principles of risk management

Deutsche Telekom is exposed in particular to risks from movements in exchange rates, interest rates, and market prices that affect its assets, liabilities, and forecast transactions. Financial risk management aims to limit these market risks through ongoing operational and finance activities. Selected derivative and non-derivative hedging instruments (hedging transactions) are used for this purpose, depending on the risk assessment. However, Deutsche Telekom only hedges the risks that affect the Group’s cash flow. Derivatives are exclusively used as hedging instruments, i.e., not for trading or other speculative purposes. To reduce the credit risk, hedging instruments are generally only concluded with leading financial institutions whose credit rating is at least BBB+/Baa1. In addition, the credit risk for derivatives with a positive market value is minimized through collateral agreements with all core banks. Furthermore, the limits for deposits are also set and monitored on a daily basis depending on the rating, share price performance, and credit default swap level of the counterparty.

The fundamentals of Deutsche Telekom’s financial policy are established by the Board of Management and overseen by the Supervisory Board. Group Treasury is responsible for implementing the finance policy and for ongoing risk management. Certain transactions require the prior approval of the Board of Management, which is also regularly briefed on the severity and amount of the current risk exposure.

Treasury regards effective management of the market risk as one of its main tasks. The main risks relate to foreign currencies and interest rates.

Currency risks

Deutsche Telekom is exposed to currency risks from its investing, financing, and operating activities. Risks from foreign currencies are hedged to the extent that they influence the Group’s cash flows. Foreign-currency risks that do not influence the Group’s cash flows (i.e., the risks resulting from the translation of assets and liabilities of foreign operations into the Group’s reporting currency) are generally not hedged, however. Deutsche Telekom may nevertheless also hedge this foreign-­currency risk under certain circumstances.

Foreign-currency risks in the area of investment result, for example, from the acquisition and disposal of investments in foreign companies. Deutsche Telekom hedges these risks. If the risk position exceeds EUR 100 million, the Board of Management must make a special decision on how the risk shall be hedged. If the risk position is below EUR 100 million, Group Treasury performs the currency hedging itself. At the reporting date, Deutsche Telekom was not exposed to any significant risks from foreign-currency transactions in the field of investments.

Foreign-currency risks in the financing area are caused by financial ­liabilities in foreign currency and loans in foreign currency that are extended to Group entities for financing purposes. Group Treasury hedges these risks in full. Cross-currency swaps and currency derivatives are used to convert financial obligations and intragroup loans denominated in foreign currencies into the Group entities’ functional currencies.

At the reporting date, the foreign-currency liabilities for which currency risks were hedged mainly consisted of bonds in pounds sterling, Hong Kong dollars, Japanese yen, Norwegian kroner, and U.S. dollars. On account of these hedging activities, Deutsche Telekom was not exposed to any significant currency risks in the area of financing at the reporting date.

The Group entities predominantly execute their operating activities in their respective functional currencies. Payments made in a currency other than the respective functional currency result in foreign-currency risks in the Group. These relate in particular to payments for the ­procurement of ­network equipment and mobile handsets as well as payments to ­international telecommunications companies for the provision of access services. Deutsche Telekom generally uses currency derivatives for hedging purposes. On account of these hedging activities, Deutsche Telekom was not exposed to any significant exchange rate risks from its operating activities at the reporting date.

For the presentation of market risks, IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes of relevant risk variables on profit or loss and shareholders’ equity. In addition to currency risks, Deutsche Telekom is exposed to interest rate risks and price risks in its investments. The periodic effects are determined by relating the hypothetical changes in the risk variables to the balance of financial instruments at the reporting date. It is assumed that the balance at the reporting date is representative for the year as a whole.

Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and being of a monetary nature; differences resulting from the translation of financial statements into the Group’s presentation currency are not taken into consideration. Relevant risk variables are generally all non-functional currencies in which Deutsche Telekom has contracted financial instruments.

The currency sensitivity analyses are based on the following ­assumptions: ­Major non-derivative monetary financial instruments (liquid assets, ­receivables, interest-bearing securities and/or debt instruments held, interest-bearing liabilities, finance lease liabilities, non-interest-bearing liabilities) are either directly denominated in the functional currency or are transferred to the functional currency through the use of derivatives. Exchange rate fluctuations therefore have no effects on profit or loss, or shareholders’ equity.

Non-interest-bearing securities or equity instruments held are of a non-­monetary nature and therefore are not exposed to a currency risk as defined by IFRS 7.

Interest income and interest expense from financial instruments are also either recorded directly in the functional currency or transferred to the functional currency using derivatives. For this reason, there can be no effects on the variables considered in this connection.

In the case of fair value hedges designed to hedge currency risks, the changes in the fair values of the hedged item and the hedging transaction attributable to exchange rate movements balance out almost completely in the income statement in the same period. As a consequence, these financial instruments are not exposed to currency risks with an effect on profit or loss, or shareholders’ equity, either.

In the case of net investment hedges designed to hedge currency risks, the changes in the fair values of the hedged item and the hedging ­instrument attributable to exchange rate movements balance out completely in ­shareholders’ equity in the same period. As a consequence, these financial instruments are not exposed to currency risks with an effect on profit or loss, or shareholders’ equity, either.

Cross-currency swaps are always assigned to non-derivative hedged items, so these instruments do not have any currency effects, either.

Deutsche Telekom is therefore only exposed to currency risks from specific currency derivatives. Some of these are currency derivatives that are part of an effective cash flow hedge for hedging payment fluctuations resulting from exchange rate movements in accordance with IAS 39. Exchange rate fluctuations of the currencies on which these transactions are based affect the hedging reserve in shareholders’ equity and the fair value of these hedging instruments. Others are currency derivatives that are neither part of one of the hedges defined in IAS 39 nor part of a natural hedge. These derivatives are used to hedge planned transactions. Exchange rate ­fluctuations of the currencies on which such financial instruments are based affect other financial income or expense (net gain/loss from remeasurement of financial assets and liabilities to fair value).

If the euro had gained (lost) 10 percent against all currencies at December 31, 2017, the hedging reserve in shareholders’ equity and the fair values of the hedging instruments before taxes would have been EUR 80 million higher (lower) (December 31, 2016: EUR 85 million higher (lower)). The hypothetical effect of EUR 80 million on profit or loss primarily results from the currency sensitivities EUR/USD: EUR 91 million and EUR/GBP: EUR -10 million. If the euro had gained (lost) 10 percent against all currencies at December 31, 2017, other financial income and the fair value of the hedging instruments before taxes would have been EUR 90 million higher (lower) (December 31, 2016: EUR 79 million higher (lower)). The hypothetical ­effect of EUR 90 million on profit or loss primarily results from the currency sensitivities EUR/USD: EUR 73 million, EUR/GBP: EUR 39 million, and EUR/HRK: EUR -11 million.

Interest rate risks

Deutsche Telekom is exposed to interest rate risks, mainly in the euro zone and in the United States. The interest risks are managed as part of the interest rate management activities, in the course of which the maximum permissible negative deviation from the planned finance costs (the risk budget) is determined. The composition of the ­liabilities portfolio (ratio of fixed to variable and average fixed-interest period) is managed by issuing primary (non-derivative) financial instruments and, where necessary, also deploying derivative financial instruments, so as to ensure compliance with the risk budget. Regular reports are submitted to the Board of Management and Supervisory Board.

Including derivative hedging instruments, an average of 39 percent (2016: 43 percent) of net debt in 2017 denominated in euros had a fixed rate of interest. In U.S. dollars, the fixed-rate percentage decreased compared with 2016, but as in prior years, stands slightly above 100 percent on average, taking into account the assets, on account of the high fixed-rate percentage at T-Mobile US, which is in any case standard in the market for high-yield issuers. The interest rate exposure of net debt denominated in euros remained almost constant in the reporting period, whereas it increased steadily for net debt denominated in U.S. dollars until shortly before the end of the year.

Interest rate risks are presented by way of sensitivity analyses in ­accordance with IFRS 7. These show the effects of changes in market interest rates on interest payments, interest income and expense, other income components, and, if appropriate, shareholders’ equity. The interest rate sensitivity analyses are based on the following assumptions: Changes in the market interest rates of non-derivative financial instruments with fixed interest rates only affect income if these are measured at their fair value. As such, all financial instruments with fixed interest rates that are carried at amortized cost are not subject to interest rate risk as defined in IFRS 7.

In the case of fair value hedges designed for hedging interest rate risks, the changes in the fair values of the hedged item and the hedging ­instrument attributable to interest rate movements balance out almost completely in the income statement in the same period. This means that interest-rate-based changes in the measurement of the hedged item and the hedging instrument largely do not affect income and are therefore not subject to interest rate risk.

In the case of interest rate derivatives in fair value hedges, however, changes in market interest rates affect the amount of interest payments. As a consequence, they have an effect on interest income and are therefore included in the calculation of income-related sensitivities.

Changes in the market interest rate regarding financial instruments that were designated as hedging instruments in a cash flow hedge to hedge payment fluctuations resulting from interest rate movements affect the hedging reserve in shareholders’ equity and are therefore taken into ­consideration in the equity-related sensitivity calculations.

Changes in market interest rates affect the interest income or expense of non-derivative variable-interest financial instruments, the interest payments of which are not designated as hedged items of cash flow hedges against interest rate risks. As a consequence, they are included in the calculation of income-related sensitivities.

Changes in the market interest rate regarding interest rate derivatives (interest rate swaps, cross-currency swaps) that are not part of a hedging relationship as set out in IAS 39 affect other financial income or expense and are therefore taken into consideration in the income-related sensitivity calculations. Currency derivatives are not exposed to interest rate risks and therefore do not affect the interest rate sensitivities.

If the market interest rates had been 100 basis points higher at December 31, 2017, profit or loss before taxes would have been EUR 134 million (Decem-ber 31, 2016: EUR 423 million) lower. If the market interest rates had been 100 basis points lower at December 31, 2017, profit or loss before taxes would have been EUR 209 million (December 31, 2016: EUR 504 million) higher.  This simulation includes the effects from the financial instruments assigned to Level 3 described above. The hypothetical effect of EUR 209 million/EUR -134 million on income primarily results from the potential effects of EUR 169 million/EUR -94 million from interest rate derivatives, and EUR 40 million/EUR -40 million from non-derivative, variable-interest financial liabilities. Potential effects from interest rate derivatives are partially balanced out by the contrasting performance of non-derivative financial instruments, which cannot, however, be shown as a result of applicable accounting standards. If the market interest rates had been 100 basis points higher (lower) at December 31, 2017, the hedging reserve in equity before taxes would have been EUR 32 million higher (lower) (December 31, 2016: EUR 10 million lower (higher)), and gains and losses recognized in equity from the remeasurement of available-for-sale financial assets before taxes would have been less than EUR 1 million lower (higher) (December 31, 2016: less than EUR 1 million lower (higher)).

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 exchange prices or indexes.

If the BT share price had been 10 percent lower (higher) on December 31, 2017, other financial income and the fair value of the financial stake in BT before taxes would have been EUR 366 million lower (higher) (December 31, 2016: EUR 513 million lower (higher)).

Furthermore, aside from the value-creating factors in the financial ­instruments assigned to Level 3 described above, there were no other price risks as of December 31, 2017, as was also the case at December 31, 2016.

Credit risk

Deutsche Telekom is exposed to a credit risk from its operating activities and certain financing activities. As a rule, transactions with regard to financing activities are only concluded with counterparties that have at least a credit rating of BBB+/Baa1, in connection with an operational credit management system. At the level of operations, the outstanding debts are continuously monitored in each area, i.e., locally. Credit risks are taken into account through individual and collective allowances.

The solvency of the business with corporate customers, especially ­inter-­national carriers, is monitored separately. In terms of the overall risk exposure from the credit risk, however, the receivables from these counterparties are not so extensive as to justify extraordinary concentrations of risk.

millions of €
  Dec. 31, 2017
  Trade receivables Trade payables Derivative financial assets Derivative financial liabilities
Gross amounts subject to enforceable master netting arrangements or similar agreements 383 439 966 890
Amounts set off in the statement of financial position in accordance with IAS 32.42 (121) (121)
Net amounts presented in the statement of financial position 262 318 966 890
Amounts subject to enforceable master netting arrangements or similar agreements and not meeting all offsetting requirements in accordance with IAS 32.42 (29) (29) (936) (870)
Of which: amounts related to recognized financial instruments (29) (29) (370) (370)
Of which: amounts related to financial collateral (including cash collateral) (566) (500)
Net amounts 233 289 30 20
millions of €
  Dec. 31, 2016
  Trade receivables Trade payables Derivative financial assets Derivative financial liabilities
Gross amounts subject to enforceable master netting arrangements or similar agreements 398 492 1,464 897
Amounts set off in the statement of financial position in accordance with IAS 32.42 (117) (117)
Net amounts presented in the statement of financial position 281 375 1,464 897
Amounts subject to enforceable master netting arrangements or similar agreements and not meeting all offsetting requirements in accordance with IAS 32.42 (65) (65) (1,453) (881)
Of which: amounts related to recognized financial instruments (65) (65) (672) (672)
Of which: amounts related to financial collateral (including cash collateral) (781) (209)
Net amounts 216 310 11 16

Offsetting is applied in particular to receivables and liabilities at Deutsche Telekom AG and Telekom Deutschland GmbH for the routing of international calls via the fixed network and for roaming fees in the mobile network.

In line with the contractual provisions, in the event of insolvency all ­derivatives with a positive or negative fair value that exist with the ­respective ­counterparty are offset against each other, leaving a net receivable or liability. The net amounts are normally recalculated every bank working day and offset against each other.

When the netting of the positive and negative fair values of all derivatives was positive from Deutsche Telekom’s perspective, the counterparty provided Deutsche Telekom with cash pursuant to the collateral contracts mentioned in Note 1 “Cash and cash equivalents.” The credit risk was thus further reduced.

When the netting of the positive and negative fair values of all derivatives was negative from Deutsche Telekom’s perspective, Deutsche Telekom provided cash collateral to counterparties pursuant to collateral agreements. The net amounts are normally recalculated every bank working day and offset against each other. The cash collateral paid (please also refer to Note 8 “Other financial assets”) is offset by corresponding negative net derivative positions of EUR 500 million at the reporting date, which is why it was not exposed to any credit risks in this amount as of the reporting date. The collateral paid is reported under originated loans and receivables within other financial assets. On account of its close connection to the corresponding derivatives, the collateral paid constitutes a separate class of financial assets. Likewise, the collateral received, which is reported as other interest-bearing liabilities under financial liabilities, constitutes a separate class of financial liabilities on account of its close connection to the corresponding derivatives.

In accordance with the terms of bonds issued by a Deutsche Telekom subsidiary, this subsidiary has the right to terminate the bonds prematurely under specific conditions. The rights of termination constitute embedded derivatives and are recognized separately as derivative financial assets in the consolidated statement of financial position. Since they are not exposed to any credit risk, they constitute a separate class of financial instruments.

No other significant agreements reducing the maximum exposure to the credit risks of financial assets existed. The maximum exposure to credit risk of the other financial assets thus corresponds to their carrying amounts.

In addition, Deutsche Telekom would be exposed to a credit risk if ­financial guarantees were granted. No guarantees had been pledged as of the reporting date (December 31, 2016: EUR 75 million), such that no credit risk arose from such instruments.

Risks from financing and loan commitments

There were no risks from financing and loan commitments as of the reporting date

Liquidity risk

please also refer to Note 10 “Financial liabilities.”

Hedge Accounting

Fair value hedges. To hedge the fair value risk of fixed-interest liabilities, Deutsche Telekom primarily used interest rate swaps and forward interest rate swaps (pay variable, receive fixed) denominated in EUR, GBP, and USD. Fixed-income bonds denominated in EUR, GBP, and USD were designated as hedged items. The changes in the fair values of the hedged items resulting from changes in the Euribor, GBP Libor, or USD Libor swap rate are offset against the changes in the value of these interest rate swaps. In addition, cross-currency swaps (EUR/HKD, EUR/NOK, and EUR/USD) are designated as fair value hedges, which convert fixed-income foreign currency bonds into variable-interest EUR securities to hedge the interest rate and currency risk. The changes in the fair value of the hedged items resulting from changes in the HKD HIBOR, NOK OIBOR, and USD LIBOR swap rate as well as the HKD, NOK, and USD exchange rate, are offset against the changes in the value of these cross-currency and interest rate swaps. The aim of the fair value hedges is thus to transform the fixed-in­come bonds into variable-interest debt, thus hedging the fair value (interest rate risk and currency risk) of these financial liabilities. Credit risks are not part of the hedging.

The effectiveness of the hedging relationship is tested prospectively and retrospectively at each reporting date using statistical methods in the form of a regression analysis. All hedging relationships were sufficiently effective as of the reporting date.

In the reporting period, new fair value hedges with a total nominal volume of EUR 8.1 billion were designated for reducing the fair value risk.

As the list of the fair values of derivatives shows, ­Deutsche Telekom had interest rate derivatives with a net fair value of EUR -0.3 billion (December 31, 2016: EUR 0.2 billion) designated as fair value hedges at December 31, 2017. The remeasurement of the hedged items resulted in gains of EUR 189 million being recorded in other financial income/expense in the 2017 financial year (2016: EUR 47 million); the changes in the fair values of the hedging transactions resulted in losses of EUR 175 million (2016: EUR 25 million) being recorded in other financial income/expense.

Cash flow hedges – interest rate risks. Deutsche Telekom entered into payer interest rate swaps and forward payer interest rate swaps (pay fixed, receive variable) to hedge the cash flow risk of variable-interest debt. The interest payments to be made in the hedging period are the hedged items and are recognized in profit or loss in the same period. The changes in the cash flows of the hedged items resulting from changes in the Euribor and Libor rates are offset against the changes in the cash flows of the interest rate swaps. The aim of this hedging is to transform the variable-interest bonds into fixed-income debt, thus hedging the cash flows of the financial liabilities. Credit risks are not part of the hedging.

The effectiveness of the hedging relationship is tested prospectively and retrospectively using statistical methods in the form of a regression analysis.

As of the reporting date, no more hedging relationships of this kind are designated. Although the hedged cash flows are still expected to occur, the hedging instruments were de-designated in the reporting period. The hedged cash flows are expected to occur between 2018 and 2019 and to be recognized in profit or loss.

As the list of the fair values of derivatives shows, as in the prior year, Deutsche Telekom had no interest rate derivatives designated as hedging instruments for the hedging of interest rate risks as part of cash flow hedges at December 31, 2017.

The recognition directly in equity of the change in the fair value of the hedging instruments did not result in any gains or losses in shareholders’ equity in the 2017 financial year (2016: losses of EUR 1 million). Losses amounting to EUR 119 million (2016: losses of EUR 109 million) recognized directly in equity were reclassified to other financial income/expense in the income statement in the 2017 financial year.

Cash flow hedges – currency risks. Deutsche Telekom entered into currency derivative and cross-currency swap agreements to hedge cash flows not denominated in a functional currency. The payments in foreign currency to be made in the hedging period are the hedged items and are recognized in profit or loss in the same period. The terms of the hedging relationships will end in the years 2018 through 2033. The effectiveness of the hedging relationship is tested prospectively and retrospectively using statistical methods in the form of a regression analysis. All designated hedging relationships were sufficiently effective as of the reporting date.

No new cash flow hedges of this kind were designated in the reporting period.

In the 2017 financial year, losses (before taxes) totaling EUR 270 million (2016: losses of EUR 457 million) resulting from the change in the fair values of currency derivatives were taken directly to equity (hedging reserve). These changes constitute the effective portion of the hedging relationship. In the 2017 financial year, losses totaling EUR 318 million recognized directly in equity were reclassified to other financial income/expense and losses totaling EUR 13 million were reclassified to profit/loss from operations (2016: losses of EUR 189 million were reclassified to other financial income/expense and losses of EUR 30 million to profit/loss from operations). Ineffectiveness of EUR 16 million (income) was recognized in profit or loss under other financial income/expense in the reporting year (2016: income of EUR 7 million).

As the list of the fair values of derivatives shows, Deutsche Telekom had currency forwards of a net fair value of EUR 34 million (December 31, 2016: EUR -11 million), that are the result of foreign currency purchases totaling EUR 0.4 billion and foreign currency sales totaling EUR 1.1 billion (December 31, 2016: foreign currency purchases of EUR 0.6 billion and foreign currency sales of EUR 1.3 billion), as well as cross-currency swaps of a net fair value of EUR -0.2 billion (December 31, 2016: EUR 0.2 billion) and a total volume of EUR 3.2 billion (December 31, 2016: EUR 3.2 billion) designated as hedging instruments for cash flow hedges as of December 31, 2017.

Hedging of a net investment. The hedge of the net investment in ­T-Mobile US against fluctuations in the U.S. dollar spot rate de-designated in 2012 did not generate any effects in 2017. The level of gains/losses recognized directly in equity (total other comprehensive income) remained unchanged at EUR -0.4 billion (before taxes).

Derivatives. The following table shows the fair values of the various ­derivatives. A distinction is made depending on whether these are part of an effective hedging relationship as set out in IAS 39 (fair value hedge, cash flow hedge, net investment hedge) or not. Other derivatives can also be embedded, i.e., a component of a composite instrument that contains a non-derivative host contract. The following table also includes derivative financial liabilities directly associated with non-current assets and disposal groups held for sale.

Transfer of financial assets

millions of €
     
  Net carrying amounts
Dec. 31, 2017
Net carrying amounts
Dec. 31, 2016
     
Assets    
Interest rate swaps    
Without a hedging relationship 83 116
In connection with fair value hedges 172 217
In connection with cash flow hedges
Currency forwards/currency swaps    
Without a hedging relationship 49 131
In connection with cash flow hedges 37 25
Cross-currency swaps    
Without a hedging relationship 619 716
In connection with fair value hedges 13
In connection with cash flow hedges 5 243
Other derivatives in connection with cash flow hedges
Other derivatives without a hedging relationship 1 3
Embedded derivatives 351 915
Liabilities    
Interest rate swaps    
Without a hedging relationship 65 243
In connection with fair value hedges 114 38
In connection with cash flow hedges
Currency forwards/currency swaps    
Without a hedging relationship 59 249
In connection with cash flow hedges 3 36
In connection with net investment hedges
Cross-currency swaps    
Without a hedging relationship 154 273
In connection with fair value hedges 328 41
In connection with cash flow hedges 164 12
Other derivatives in connection with cash flow hedges
Other derivatives without a hedging relationship 3 5
Embedded derivatives 56 837
Derivative financial liabilities directly associated with non-current assets and disposal groups held for sale (without a hedging relationship) 50

Factoring transactions with substantially all risks and rewards being transferred. A factoring transaction is in place under which a buyer of receivables is required to purchase current trade receivables. The bank’s purchase obligation revolves on a monthly basis and covers a maximum receivables amount of EUR 250 million when translated into euros. Sales exceeding this amount must be agreed on a case-by-case basis. The agreement runs until 2022, giving Deutsche Telekom the freedom to decide whether receivables will be sold and in which revolving nominal volume. The risks relevant for the risk assessment with respect to the receivables sold are the credit risk and the risk of late payments (late-payment risk). The credit risk represents substantially all the risks and rewards of ownership of the receivables and is transferred to the buyer of the receivables in full in return for payment of a fixed purchase price discount. The late-payment risk continues to be borne in full by Deutsche Telekom. The maximum exposure to loss resulting from late-payment risk relating to the receivables sold and derecognized as of December 31, 2017 (nominal volume EUR 272 million) is EUR 1 million. At the derecognition date, the fixed purchase price discount and the fair value of the expected loss resulting from the late-payment risk was expensed. The expected loss resulting from the late-payment risk recognized under financial liabilities represents Deutsche Telekom’s entire continuing involvement; as of December 31, 2017, the carrying amount and fair value each amounted to less than EUR 1 million. Deutsche Telekom expensed EUR 40 million in total in the 2017 financial year from its continuing involvement to account for purchase price discounts and program fees (interest and bank margin) and has expensed a total amount of EUR 169 million since the beginning of the transaction. The volume of receivables sold during the financial year amounted to between EUR 154 million and EUR 309 million. As of December 31, 2017, a total provision of EUR 3 million was recognized for the receivables management to be performed by Deutsche Telekom.

There are also factoring agreements with terms ending between 2020 and 2022, under which Deutsche Telekom is entitled to the monthly revolving sale of trade receivables up to a maximum receivables amount of EUR 196 million when translated into euros. An agreement recognized in the prior year as a factoring transaction involving the splitting of significant risks and rewards with control remaining at Deutsche Telekom was ­restructured such that in 2017, it was recognized as a factoring transaction with substantially all risks and rewards being transferred. Another agreement was concluded in the financial year. The risks relevant for the risk assessment with respect to the receivables sold are the credit risk and the risk of late ­payments (late-payment risk). Both risks are transferred to the buyers of the ­receivables in full in return for payment of a fixed program fee. The existing loan insurance policy reimburses losses relating to certain receivables to a maximum amount of EUR 33 million and thus reduces the exposure to loss. The volume of receivables sold during the financial year amounted to between EUR 69 million and EUR 131 million when translated into euros. As of December 31, 2017, receivables of EUR 105 million when translated into euros were sold and derecognized. In financial year 2017, Deutsche Telekom expensed program fees of less than EUR 1 million when translated into euros and has expensed a total amount of EUR 2 million since the beginning of the transaction. As of December 31, 2017, a provision of less than EUR 1 million was recognized for the receivables management to be performed by Deutsche Telekom.

Deutsche Telekom recognizes the purchase price payments received from the buyers under cash generated from operations. Please also refer to Note 30 “Notes to the consolidated statement of cash flows.”

Factoring transactions involving the splitting of significant risks and rewards as well as the transfer of control. Factoring transactions are in place under which banks are required to purchase trade receivables. The receivables sold entail both charges already due and charges from sales of handsets payable over a period of up to two years. The banks’ purchase obligation revolves on a monthly basis and covers a maximum receivables amount of EUR 675 million when translated into euros. Sales exceeding this amount must be agreed on a case-by-case basis. The purchase price up to a maximum amount of EUR 445 million will be paid out immediately upon sale; remaining portions of the purchase price will only be paid to the extent that the volume of receivables sold decreases further accordingly. The term of the agreements ends between 2018 and 2020, giving Deutsche Telekom the freedom to decide whether receivables will be sold and in which volume. The risks relevant for the risk assessment with respect to the receivables sold are the credit risk and the risk of late payments (late-payment risk). The purchase price corresponds to the nominal amount. The maximum credit risk from the various tranches to be borne by Deutsche Telekom amounts to EUR 123 million. The other credit risk-related losses are borne by the banks. The existing loan insurance policy reimburses losses relating to certain receivables to a maximum amount of EUR 150 million and thus reduces the exposure to loss. The late-payment risk ­continues to be borne almost entirely by Deutsche Telekom. The maximum exposure to loss resulting from credit risk and late-payment risk relating to the receivables sold as of December 31, 2017 (nominal volume EUR 394 million when translated into euros), excluding loan insurance coverage, is EUR 128 million. Substantially all the risks and rewards of ownership of the receivables were neither transferred nor retained (allocation of the material risks between Deutsche Telekom and the bank). Control of the receivables sold was transferred to the banks because these have the practical ability to resell the receivables. All receivables sold as of December 31, 2017 have been derecognized. At the derecognition date, the fair value of the expected losses was expensed as financial liabilities. As of December 31, 2017, the carrying amount of the financial liability ­representing Deutsche Telekom’s entire continuing involvement was EUR 1 million and its fair value was EUR 1 million. Deutsche Telekom expensed EUR 10 million, including credit-risk discounts and loss allocations to cover monthly credit risks, in the financial year from its continuing involvement including program fees (interest and bank margin), and has expensed a total amount of EUR 63 million since the beginning of the transaction. A factoring agreement that was still active in the prior period was completed and settled as of the reporting date. Deutsche Telekom recognized the purchase price payments received from the buyers under cash generated from operations. Please also refer to Note 30 “Notes to the consolidated statement of cash flows.” The bank has the right to sell back all overdue receivables to Deutsche Telekom. For some of the transactions, the purchase price corresponds to the nominal amount and is payable in the month following the buy-back (outstanding receivables volume as of December 31, 2017: EUR 337 million when translated into euros). In other transactions, the purchase price equals the actual proceeds from collection or disposal, and is payable in the month after Deutsche Telekom receives these proceeds from collection or disposal (outstanding receivables ­volume as of December 31, 2017: EUR 57 million when translated into euros). Such buy-backs would not affect the allocation of the credit risk-related losses in any way, not even in the event of buy-back at nominal amount, as such losses would be passed back to the bank in line with the agreed risk allocation. The volume of receivables sold was not subject to major fluctuations since the beginning of the transaction. The carrying amount of the provision recognized by Deutsche Telekom as of December 31, 2017 for the receivables management to be performed is less than EUR 1 million.

Factoring transactions involving the splitting of significant risks and rewards with control remaining at Deutsche Telekom. Deutsche Telekom is party to factoring agreements under which it sells trade receivables on a revolving basis. The receivables are sold on a daily basis and settled on a monthly basis. The receivables sold entail both charges already due and charges from sales of handsets payable over a period of up to two years. The debtors are consumers as well as business customers. In none of the transactions is Deutsche Telekom exposed to risks other than the credit risk and late-payment risk resulting from the sold receivables agreed in the respective agreement. The term of the agreements ends between 2018 and 2022.

In one factoring agreement, the buyers have a monthly revolving purchase obligation that covers a maximum receivables amount of EUR 1,583 million when translated into euros. The purchase price up to a maximum of EUR 792 million when translated into euros will be paid out immediately upon sale; remaining portions of the purchase price will only be paid to the extent that the volume of receivables sold decreases further accordingly. As part of this transaction, subsidiaries of Deutsche Telekom sell receivables to a structured entity that is also a subsidiary of Deutsche Telekom and was established for the sole purpose of this factoring agreement. The ­structured entity has no assets and liabilities other than those resulting from the ­purchase and sale of the receivables under the factoring agreement. It resells the receivables to another structured entity. Deutsche Telekom does not consolidate this other structured entity because it has no ability to direct this entity’s relevant activities. This other structured entity sells the ownership interests in the receivables to two banks and one structured entity on a pro-rata basis. Deutsche Telekom does not consolidate this structured entity either because it has no ability to direct this entity’s relevant activities. The required funding is provided to the structured entity consolidated by Deutsche Telekom in the context of Deutsche Telekom’s general Group financing. The structured entities not consolidated by Deutsche Telekom are financed by the external buyers of the receivables. All receivables are purchased in an automated process based on the purchase criteria set out in the receivables purchase agreement. Deutsche Telekom is obligated to buy back aged receivables and receivables for which a write-down is imminent at nominal value. The cash flows resulting from the buy-backs would occur in the month following the buy-back. Such buy-backs of receivables would not affect the allocation of the credit risk-related losses in any way, as the latter would be passed back to the buyers in line with the agreed risk allocation. The nominal volume of the receivables sold by Deutsche Telekom and not yet settled by the debtors was EUR 1,176 million as of the reporting date when translated into euros.

In another factoring agreement, the buyers have a monthly revolving purchase obligation. Here the amount of the purchase price to be paid immediately is determined on the basis of the characteristics of the receivables. The buyers’ purchase obligation covers a receivables amount that leads to an immediate purchase price payment of EUR 1,083 million when translated into euros. The remaining purchase price is only paid if the volume of the receivables sold decreases accordingly or the characteristics of the receivables change. As part of this transaction, subsidiaries of Deutsche Telekom sell receivables to a structured entity that is also a subsidiary of Deutsche Telekom and was established for the sole purpose of this factoring agreement. The required funding is provided to this structured entity in the context of Deutsche Telekom’s general Group financing. It has no assets and liabilities other than those resulting from the purchase and sale of the receivables under the factoring agreement. The structured entity transfers the legal role of creditor for the receivables to a bank that performs this role on behalf of the investors who have beneficial ownership of the receivables (administrative agent). These investors are a bank and two structured entities. Deutsche Telekom does not consolidate these structured entities because it has no ability to direct these entities’ relevant activities. The structured entities are financed through the issue of commercial paper to third parties outside the Group or, alternatively, through a credit facility provided by a bank. All receivables are purchased in an automated process based on the purchase criteria set out in the receivables purchase agreement. Deutsche Telekom is obligated to buy back aged receivables and receivables for which a write-down is imminent at nominal value. Such buy-backs would not result in any cash outflow, but rather would correspondingly reduce the retained portions of the purchase price payable to Deutsche Telekom in the future. The buy-backs would not affect the allocation of the credit risk-related losses in any way, as the latter would be passed back to the buyers in line with the agreed risk allocation. The nominal volume of the receivables sold by Deutsche Telekom and not yet settled by the debtors was EUR 1,631 million as of the reporting date when translated into euros.

Another factoring agreement has a maximum program volume of EUR 150 million. If the buyer agrees to purchase receivables beyond this amount, the purchase price payment shall be deferred until the maximum program volume decreases again by the corresponding amount. With this structure, there is no structured entity consolidated by Deutsche Telekom. Rather, the receivables are sold directly to a structured entity that is not consolidated by Deutsche Telekom due to the lack of ability to direct the entity’s relevant activities. This structured entity holds the receivables and allocates the risks and rewards resulting from these to Deutsche Telekom and a bank on the basis of contractual arrangements. The structured entity is financed through the issue of commercial paper to third parties outside the Group or, alternatively, through a credit facility provided by a bank. In one receivables portfolio, the receivables are purchased in an automated process based on the purchase criteria set out in the receivables purchase agreement. In another receivables portfolio, the structured entity has the freedom to decide whether and which receivables will be purchased, though purchase of the agreed minimum volume is imperative. Deutsche Telekom is obligated to buy back aged receivables and receivables for which a write-down is imminent at nominal value. The cash flows resulting from the buy-backs would occur in the month following the buy-back. Such buy-backs of receivables would not affect the allocation of the credit risk-related losses in any way, as the latter would be passed back to the buyers in line with the agreed risk allocation. The nominal volume of the receivables sold by Deutsche Telekom and not yet settled by the debtors was EUR 119 million as of the reporting date. None of the structured entities has business activities other than the purchase or sale of trade receivables or other investments.

Under another factoring agreement with a maximum volume of receivables of EUR 725 million, Deutsche Telekom sells the receivables directly to the purchasers outside the Group without using structured entities as ­intermediaries. If more receivables are purchased, the purchase price ­payment is deferred until the maximum program volume accordingly falls again. Deutsche Telekom has the freedom to decide whether receivables can be sold and in which volume. Receivables for which a write-down is imminent are sold back to Deutsche Telekom. Here the purchase price ­corresponds to the actual proceeds from collection or disposal and is payable in the month after Deutsche Telekom receives these proceeds from collection or disposal. As such, these buy-backs would affect neither the allocation of the credit risk-related losses nor Deutsche Telekom’s liquidity situation.

Under another factoring agreement with a maximum volume of ­receivables of EUR 50 million, Deutsche Telekom sells the receivables directly to the ­purchasers outside the Group without using structured entities as ­intermediaries. Deutsche Telekom has the freedom to decide whether receivables can be sold and in which volume. The existing loan insurance policy reimburses losses relating to certain receivables to a maximum amount of EUR 17 million and thus reduces the exposure to loss. An agreement recognized in the prior year as a factoring transaction ­involving the ­splitting of significant risks and rewards with control remaining at Deutsche ­Telekom was restructured such that in 2017, it was recognized as a ­factoring ­transaction with substantially all risks and rewards being transferred.

Under another factoring agreement with a maximum volume of receivables of EUR 150 million, Deutsche Telekom also sells the receivables directly to the purchasers outside the Group without using structured entities as intermediaries. Deutsche Telekom has the freedom to decide whether receivables can be sold and in which volume.

The nominal volume of the receivables sold by Deutsche Telekom under the factoring agreements and not yet settled by the debtors was EUR 3,973 million as of the reporting date when translated into euros. The risks relevant for the risk assessment with respect to the sold receivables are based on the credit risk and the risk of late payments (late-payment risk). The maximum credit risk to be borne by Deutsche Telekom amounts to EUR 622 million as of the reporting date when translated into euros and is largely attributable to transactions involving structured entities. The other credit risk-related losses are borne by the buyers. The late-payment risk continues to be borne in full by Deutsche Telekom. The maximum exposure to loss for Deutsche Telekom resulting from credit risk and late-payment risk relating to the receivables sold at the reporting date is EUR 704 million when translated into euros and is largely attributable to transactions ­involving structured entities. Substantially all the risks and rewards of ownership of the receivables were neither transferred nor retained (allocation of the material risks and rewards between Deutsche Telekom and the buyers). Deutsche Telekom continues to perform servicing for the receivables sold. Under the factoring agreements in which structured entities are engaged, buyers have the right to transfer the servicing to third parties for no specific reason. Although Deutsche Telekom is not authorized to use the receivables sold other than in its capacity as servicer, it retains control over the receivables sold because the buyers and the structured entities do not have the practical ability to resell the purchased receivables. At the time the receivables are sold, the fair value of the expected losses is expensed. Expected future payments are presented as a component of the associated liability. In transactions with structured entities, certain portions of the purchase price are initially held back and, depending on the amount of the actual defaults, are only paid to Deutsche Telekom at a later date. To the extent that such portions of the purchase price are expected to be received in the future, they are recognized at fair value. Deutsche Telekom continues to recognize the trade receivables sold to the extent of its continuing involvement, i.e., in the maximum amount with which it is still liable for the credit risk and late-payment risk inherent in the receivables sold, and recognizes a corresponding associated liability presented in liabilities to banks. The receivables and the associated ­liability are then derecognized in the extent to which Deutsche Telekom’s continuing involvement is reduced (particularly when payment is made by the ­customer). The carrying amount of the receivables is subsequently reduced by the extent to which the actual losses to be borne by Deutsche Telekom resulting from the credit risk and the late-payment risk exceed the losses initially expected. This amount is recognized as an expense. Deutsche Telekom’s continuing involvement as of December 31, 2017 amounted to EUR 704 million when translated into euros, and the carrying amount of the associated liability was EUR 705 million when translated into euros. Deutsche Telekom presents the purchase price payments ­received from the buyers under cash generated from operations where these relate to the derecognized portion of the receivables, and under net cash from/used in financing activities where they relate to the portion of the ­receivables that is still recognized. Please also refer to Note 30 “Notes to the consolidated statement of cash flows.” The carrying amount of the provision recognized by Deutsche Telekom as of December 31, 2017 for the receivables management to be performed is EUR 4 million. The volume of receivables sold was not subject to major fluctuations since the beginning of the respective transaction.