(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises from future commercial
transactions and recognised assets and liabilities
denominated in a currency that is not the entity’s
functional currency. The risk is measured using
sensitivity analysis and cash flow forecasting.
Forward contracts, transacted with the finance
division, are used to manage foreign exchange risk.
The finance division is responsible for managing the
Group’s exposures in each foreign currency by using
external forward currency contracts.
NOTE 30
FINANCIAL RISK MANAGEMENT (CONTINUED)
2013
2012
USD
$’000
USD
$’000
Forward exchange contracts
- buy foreign currency (cash flow hedges)
100
142
(ii) Cash flow and interest rate risk
The Group’s main interest rate risk arises from
borrowings. Bonds issued at variable rates expose the
Group to cash flow interest rate risk. The Group policy
is to maintain a minimum of 25% of its borrowings at
fixed rate (currently that is at 100%) using interest
rate swaps to achieve this when necessary. During
the financial year, the Group’s borrowings at fixed and
variable rate were denominated in Australian Dollars.
The Group’s policy is to invest its available cash
reserves with due regard to the timing and magnitude
of cash flow requirements. The Group manages
its cash flow interest rate risk by entering into and
designating interest rate swaps as hedges. As at the
reporting date, cash reserves are being held as cash
and short term investments.
As at the end of the reporting date, the Group had the
following variable rate investments:
Consolidated entity
2013
2012
Weighted
average
interest rate
%
Balance
$’000
Weighted
average
interest rate
%
Balance
$’000
Cash and cash equivalents
3.2% 217,375
4.1%
45,924
Net exposure to cash flow interest rate risk
217,375
45,924
93
