NOTES TO THE FINANCIAL STATEMENTS
For the Financial Year Ended 31 December 2014
40 FINANCIAL RISK MANAGEMENT (CONT’D)
(b)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial
instruments will fluctuate because of changes in market interest rates. The Group’s exposure to market risk for
changes in interest rates relates primarily to its cash deposits and debt obligations.
The Group’s policy is to manage its interest cost using a combination of fixed and floating rate debts and also
derivative financial instruments such as interest rate swaps and cross currency swaps to hedge interest rate risks.
Surplus funds are placed with reputable banks to generate interest income for the Group.
The table below demonstrates the sensitivity to a reasonably possible change in interest rates with all other variables
held constant, of the Group’s profit after tax through the impact on interest income from bank deposits and interest
expense on floating rate borrowings:
Group
Increase/
decrease
Effect on
profit
in basis point
after tax
$’000
31 December 2014
– Singapore Dollar
+25
600
–25
(600)
– Malaysian Ringgit
+25
(165)
–25
165
– United States Dollar
+25
(31)
–25
31
31 December 2013
– Malaysian Ringgit
+25
(133)
–25
133
– United States Dollar
+25
(95)
–25
95
At the end of the reporting period, for the increase/decrease in the various basis points on interest rates for the
various currencies, the effects associated with such changes on the Group’s profit after tax are as illustrated above.
144
THE STRAITS TRADING COMPANY LIMITED ANNUAL REPORT 2014
