NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2015
130
THE STRAITS TRADING COMPANY LIMITED
40.
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks. Apart from those risks generated from operations such as
extending credits and cash flow management, other risks include the effects of changes in debt and equity market prices,
foreign currency exchange rates, interest rates and commodity prices.
The Group’s management monitors its financial position closely with an objective to minimise potential adverse effects
on the financial performance of the Group. The Group uses derivative financial instruments, where appropriate, for its risk
management activities.
There has been no change to the Group’s exposure to these risks or the manner in which it manages the risks.
The policies for managing these risks are summarised below.
(a)
Foreign exchange risk
The Group operates mainly in Asia Pacific and has exposure to foreign exchange risk as a result of sales or purchase
transactions that are denominated in a currency other than the functional currencies of the respective Group
entities. These foreign exchange risk exposures are mainly in Australian Dollar, United States Dollar, and Japanese
Yen. The Group uses forward currency contracts to manage these exposures where appropriate. The Group also
uses loans in foreign currency to hedge its exposure to foreign exchange risk on investments in foreign operations
where appropriate.
Sensitivity analysis for foreign currency risk
The following table demonstrates the sensitivity of the Group’s profit after tax and equity to a reasonably possible
change in the exchange rates of the United States Dollar, Australian Dollar, Singapore Dollar and Japanese Yen
against the functional currencies of the respective Group entities, with all other variables held constant.
Group
2015
2014
Profit after
tax
Equity
Profit after
tax
Equity
$’000
$’000
$’000
$’000
United States Dollar
strengthened 5% (2014: 5%)
(1,509)
(1,794)
(4,024)
(2,591)
weakened 5% (2014: 5%)
(64)
1,792
839
2,591
Australian Dollar
strengthened 5% (2014: 5%)
792
–
57
–
weakened 5% (2014: 5%)
(792)
–
(57)
–
Singapore Dollar
strengthened 5% (2014: 5%)
764
(837)
289
(837)
weakened 5% (2014: 5%)
(764)
837
(289)
837
Japanese Yen
strengthened 5% (2014: 5%)
35
(723)
243
–
weakened 5% (2014: 5%)
(35)
723
(243)
–
