NOTES TO THE FINANCIAL STATEMENTS
(CONT’D)
31 DECEMBER 2015
28.
FINANCIAL INSTRUMENTS: INFORMATION ON FINANCIAL RISKS (CONT’D)
28B.
Financial risk management
The main purpose for holding or issuing financial instruments is to raise and manage the finances for the entity’s
operating, investing and financing activities. There are exposures to the financial risks on the financial instruments
such as credit risk, liquidity risk andmarket risk comprising interest rate risk, currency risk and price risk exposures.
Management has certain practices for the management of financial risks and actions to be taken in order to
manage the financial risks. The guidelines include the following:
1.
Minimise interest rate, currency, credit and market risks for all kinds of transactions.
2.
Maximise the use of “natural hedge”: favouring as much as possible the natural off-setting of sales and
costs and payables and receivables denominated in the same currency and therefore put in place
hedging strategies only for the excess balance. The same strategy is pursued with regard to interest
rate risk.
3.
Enter into derivatives or any other similar instruments solely for hedging purposes.
4.
All financial risk management activities are carried out and monitored by senior management staff.
5.
All financial risk management activities are carried out following good market practices.
6.
May consider investing in shares, bonds or similar instruments.
The Chief Financial Officer of the Manager who monitors the procedures reports to the management of the
Manager.
28C.
Fair values of financial instruments
The analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 are disclosed in the relevant notes to the financial statements. These include both the significant
financial instruments stated at amortised cost and at fair value in the statement of financial position. The carrying
values of current financial instruments approximate their fair values due to the short-term maturity of these
instruments and the disclosures of fair value are not made when the carrying amount of current financial
instruments is a reasonable approximation of the fair value.
28D.
Credit risk on financial assets
Financial assets that are potentially subject to concentrations of credit risk and failures by counterparties to discharge
their obligations in full or in a timely manner consist principally of cash balances with banks, cash equivalents,
receivables, and certain other financial assets. The maximum exposure to credit risk is: the total of the fair value
of the financial assets, the maximum amount the entity could have to pay if the guarantee is called on, and the
full amount of any payable commitments at the end of the reporting year. Credit risk on cash balances with banks
and any other financial instruments is limited because the counter-parties are entities with acceptable credit
ratings. Credit risk on other financial assets is limited because the other parties are entities with acceptable credit
ratings. For credit risk on receivables, an ongoing credit evaluation is performed on the financial condition of the
debtors and a loss from impairment is recognised in profit or loss. The exposure to credit risk with customers are
controlled by setting limits on the exposure to individual customers and these are disseminated to the relevant
persons concerned and compliance is monitored by management. Credit risk is alsomitigated by the rental deposits
held for each of the customers. There is no significant concentration of credit risk on receivables, as the exposure
is spread over a large number of counter-parties and customers unless otherwise disclosed in the notes to the
financial statements below.
ANNUAL REPORT 2015
125
