The Company’s financial risk management policy is focused on safeguarding the stability and sustainability of the Company and its subsidiaries with regard to all such relevant financial uncertainty components.

The Company’s operations are subject to certain financial risk factors that may affect its financial position or results. The most significant risk exposures are market risk, liquidity risk, currency risk, doubtful accounts risk, and interest rate risk, among others.

There could also be additional risks, which are either unknown or known but not currently deemed to be significant, which could also affect the Company’s business operations, its business, financial position, or profit or loss.

The financial risk management structure includes identifying, determining, analyzing, quantifying, measuring and controlling these events. Management and in particular, Finance Management, is responsible for constantly assessing the financial risk.

A global economic downturn - and its potentially negative effects on the financial situation of our customers - could extend the payment terms of the Company's receivables by increasing its exposure to credit risk. Although measures are taken to minimize the risk, this global economic situation could mean losses with adverse material effects on the business, financial position or profit and loss of the Company's operations.

To mitigate these risks, the Company maintains an active control of collection and uses measures such as the use of credit insurance, letters of credit and prepayments for a portion of receivables.

The concentration of credit risk with respect to sales debtors is reduced due to the large number of companies that comprise the Company's customer base and their distribution throughout the world.

Financial investments correspond to time deposits whose maturity date is greater than 90 days and less than 360 days from the date of investment, so they are not exposed to excessive market risks.

The credit quality of financial assets that are not past due or impaired can be evaluated by reference to external credit ratings (if available) or historical information on counterparty late payment rates:

Financial institution

Financial assets

Rating Institution

As of December

‎

31, 2019

Moody´s

S&P

Fitch

ThUS$

Banco de Chile

Time deposits

P-1

A-1

50,221

Banco de Crédito e Inversiones

Time deposits

P-1

A-1

42,096

Banco Itau Corpbanca

Time deposits

P-2

A-2

39,093

Banco Santander

Time deposits

P-1

A-1

2,708

Scotiabank Sud Americano

Time deposits

F1+

14,428

Banco Estado

Time deposits

P-1

A-1

500

BBVA Banco Francés

Time deposits

JP Morgan US dollar Liquidity Fund Institutional

Investment fund deposits

Aaa-mf

AAAm

AAAmmf

181,155

Legg Mason - Western Asset Institutional cash reserves

Investment fund deposits

AAAm

AAAmmf

146,078

Total

476,

332

Financial institution

Financial assets

Rating Institution

As of December

‎

31, 2019

Moody´s

S&P

Fitch

ThUS$

Banco Scotiabank Sud Americano

90 days to 1 year

P-2

54,180

Banco de Crédito e Inversiones (*)

90 days to 1 year

P-1

A-1

178,448

Banco Santander

90 days to 1 year

P-1

A-1

74,365

Banco Itau Corpbanca

90 days to 1 year

P-2

A-2

127,579

Banco Security

90 days to 1 year

A-2

17,965

Banco de Chile

90 days to 1 year

18,026

Banco Estado

90 days to 1 year

P-1

A-1

15,126

Total

485,689

Financial institution	Financial assets		Rating Institution						As of December ‎ 31, 2018
			Moody´s		S&P		Fitch		ThUS$
Banco de Chile		Time deposits		P-1		A-1		-		7,305
Banco de Crédito e Inversiones		Time deposits		P-1		A-1		-		27,428
Banco Itau Corpbanca		Time deposits		P-2		A-2		-		61,946
Banco Santander		Time deposits		-		-		-		432
Banco Estado		Time deposits		-		-		-		3,602
BBVA Banco Francés		Time deposits		-		-		-		84
Nedbank		Time deposits		P-3		B		-		647
Scotiabank Sud Americano		Time deposits		-		-		-		86,222
JP Morgan US dollar Liquidity Fund Institutional		Investment fund deposits		Aaa-mf		AAAm		AAAmmf		133,809
Legg Mason - Western Asset Institutional cash reserves		Investment fund deposits		-		AAAm		AAAmmf		132,108
Total										453,583

Financial institution

Financial assets

Rating Institution

As of December

‎

31, 2018

Moody´s

S&P

Fitch

ThUS$

Banco Scotiabank

90 days to 1 year

24,898

Banco de Crédito e Inversiones

90 days to 1 year

P-1

A-1

145,834

Banco Santander

90 days to 1 year

P-1

A-1

23,124

Banco Itau Corpbanca

90 days to 1 year

P-2

A-2

70,719

Banco Security

90 days to 1 year

27,215

Total

291,790

The functional currency of the company is the US dollar, due to its influence on the determination of price levels, its relation to the cost of sales and considering that a significant part of the Company’s business is conducted in this currency. However, the global nature of the Company's business generates an exposure to exchange rate variations of several currencies with the US Dollar. Therefore, the Company maintains hedge contracts to mitigate the exposure generated by its main mismatches (net between assets and liabilities) in currencies other than the US dollar against the exchange rate variation, updating these contracts periodically depending on the amount of the mismatching to be covered in these currencies. Occasionally, subject to the approval of the Board, the Company ensures short-term cash flows from certain specific line items in currencies other than the US Dollar.

A significant portion of the Company’s costs, especially salary payments, is associated with the Peso. Therefore, an increase or decrease in its exchange rate with the US Dollar would affect the Company's profit and loss. By the fourth quarter, approximately US$ 424 million accumulated in expenses are associated with the Peso.

As of December 31, 2019, the Company held derivative instruments classified as hedges of foreign exchange risks associated with 73% of all the bond liabilities denominated in UF, for a fair value of US$ 18.9 million against the Company. As of December 31, 2018, this value amounted to US$ 3.9 million against the company.

Interest rate fluctuations, primarily due to the uncertain future behavior of markets, may have a material impact on the financial results of the Company. Significant increases in the rate could make it difficult to access financing at attractive rates for the Company's investment projects.

As of December 31, 2019, the Company has around 4% of its financial liabilities linked to variations in the LIBOR rate. Therefore, significant rate increases could impact its financial position. A change of 100 basis points in this rate could result in changes to financial expenses of close to US$ 0.06 million.

Liquidity risk relates to the funds needed to comply with payment obligations. The Company’s objective is to maintain financial flexibility through a comfortable balance between fund requirements and cash flows from regular business operations, bank borrowings, bonds, short term investments, and marketable securities, among others.

For this purpose, the Company keeps a high liquidity ratio, which enables it to cover current obligations with clearance. On December 31, 2019, this ratio was 3.45.

On the other hand, world financial markets go through periods of contraction and expansion that are unforeseeable in the long-term and may affect SQM’s access to financial resources. Such factors may have a material adverse impact on the Company’s business, financial position and results of operations.

SQM constantly monitors the matching of its obligations with its investments, taking due care of maturities of both, from a conservative perspective, as part of this financial risk management strategy. As of December 31, 2019, the Company had unused available revolving credit facilities with banks for a total of US$ 477 million.

	Nature of undiscounted cash flows
As of December 31, 2019 (in millions of US$)	Carrying ‎ amount		Less than 1 year		1 to 5 years		Over 5 years		Total
Bank borrowings		70.19		2.17		74.87		-		77.04
Unsecured obligations (1)		1,697.11		326.34		614.29		1,184.38		2,125.01
Sub total		1,767.30		328.51		689.16		1,184.38		2,202.05
Hedging liabilities		23.66		6.57		24.33		32.37		63.27
Derivative financial instruments		3.17		3.17		-		-		3.17
Sub total		26.83		9.74		24.33		32.37		66.44
Current and non-current lease liabilities		42.632		8.903		22.983		10.746		42.632
Trade accounts payable and other accounts payable		205.7		205.7		-		-		205.70
Total		2,042.462		552.853		736.473		1,227.496		2,516.822

	Nature of undiscounted cash flows
As of December 31, 2018 (in millions of US$)	Carrying ‎ amount		Less than 1 year		1 to 5 years		Over 5 years		Total
Bank borrowings		70.25		4.10		79.66		-		83.76
Unsecured obligations		1,273.07		61.37		823.76		713.60		1,598.73
Sub total		1,343.32		65.47		903.42		713.60		1,682.49
Hedging liabilities		17.32		5.52		15.64		29.27		50.43
Derivative financial instruments		2.86		2.86		-		-		2.86
Sub total		20.18		8.38		15.64		29.27		53.29
Trade accounts payable and other accounts payable		163.75		163.17		0.58		-		163.75
Total		1,527.25		237.02		919.64		742.87		1,899.53

The Company has methods to measure the effectiveness and efficiency of financial risk hedging strategies, both prospectively and retrospectively. These methods are consistent with the risk management profile of the SQM Group.