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notes to the financial statements (cont’d)
for the financial year ended 30 June 2014
ANNUAL REPORT 2014
123
36. Financial risk management objectives and policies (cont’d)
(c) Interest rate risk (cont’d)
Sensitivity analysis for interest rate risk
At the reporting date, it is estimated that a 20 basis points increase in interest rate, with all other variables held
constant, would decrease the Group’s and the Company’s profit net of tax by approximately RM1,195,970 and
RM87,679 (2013: RM945,825 and RM78,808) respectively, arising mainly as a result of higher interest expense
on net floating borrowing position. A decrease in interest rate would have had the equal but opposite effect
on the aforesaid amount, on the basis that all other variables remain constant.
(d) Foreign currency risk
Foreign 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 and the Company have exposure to foreign exchange risk as a result of transactions denominated
in foreign currencies, arising from normal trading activities. It is the Group’s policy to hedge these risks where
the exposures are certain and cost-efficient.
The currency giving rise to this risk is primarily United States Dollars (USD). Exposure to foreign currency risk
is monitored on an on-going basis to ensure that the exposure is at an acceptable level.
The Group and the Company use forward currency contracts to minimise the currency exposures arising
from sales and purchases after a firm commitment has been entered. It is the Group’s policy not to enter into
forward contracts until firm commitment is in place.
Sensitivity analysis for foreign currency risk
The following table demonstrates the sensitivity of the Group and the Company’s profit net of tax to a reasonably
possible 5% strengthening of the USD exchange rates against the functional currency of the Group and of the
Company, with all other variables held constant.
Group
Company
Profit net of tax
Profit net of tax
2014
2013
2014
2013
RM’000
RM’000
RM’000
RM’000
United States Dollars
3,012
2,166
601
593
A 5% weakening of the above foreign currencies against the underlying functional currencies at the reporting
date would have had the equal but opposite effect on the above currencies to the amounts shown above, on
the basis that all other variables remain constant.