CAHYA MATA SARAWAK ANNUAL REPORT 2016

www.cmsb .com.my Cahya Mata Sarawak Berhad 188 Section 07 Financial StatementS NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2016 41. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT'D.) (c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates and other prices that will affect the Group’s and the Company’s financial position or cash flows. (i) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has exposure to foreign exchange risk as a result of transactions denominated in foreign currencies, arising from purchases and imports that are denominated in a currency other than the functional currencies of the Group. The Group has also exposure to foreign exchange risk as a result of providing unsecured advances to associates. • Risk management objectives, policies and process for managing the risk It is the Group’s policy to hedge this risk where the exposures are certain and cost-efficient. The Group and the Company do not apply hedge accounting except for one of its associates and do not issue derivative financial instruments for trading purpose. The Group monitors the results of this associate and the relevant currency regularly. • Exposure to foreign currency risk The currencies giving rise to this risk are primarily United States Dollar (USD). Exposure to foreign currency risk is monitored on an ongoing basis to ensure that the exposure is at an acceptable level. At 31 December 2016 and 31 December 2015, the Group and the Company have not entered into any forward foreign currency contracts. • Currency risk sensitivity analysis A reasonable possible 10% (2015:10%) strengthening of the USD at the end of the reporting periodwould have increased theGroup’s profit for the year by RM6,428,178 (2015: RM4,936,986), being net of purchases and imports transaction amount and advances to associate, with all other variables held constant at the reporting date. A 10% weakening of the above foreign currency against the underlying functional currency at the reporting date would have had the equal but opposite effect on the above currency to the amount shown above, on the basis that all other variables remain constant. (ii) Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. • Risk management objectives, policies and process for managing the risk Interest rate exposure arising from the Group’s and the Company’s borrowings is managed through the use of fixed and floating rate debts. The Group will consider entering into derivative financial instruments where necessary to achieve an appropriate mix of fixed and floating rate exposure.