Page 99 - Neal and Massy Holdings Annual Report 2012

97 forward focused
3 Financial Risk Management (continued)
3.1 Financial risk factors (continued)
a) Market risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures.
Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in
foreign operations.
i) Currency risk
The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to
the US dollar. The Group manages its foreign exchange risk by ensuring that the net exposure in foreign assets and
liabilities is kept to an acceptable level by monitoring currency positions as well as holding foreign currency balances.
The values of debt, investments and other financial liabilities, denominated in currencies other than the functional
currency of the entities holding them, are subject to exchange rate movements. The foreign exchange positions at
September 30, 2012 relate mainly to USD loans. The single largest USD loan as at year end amounted to US$35,000
(2011: US$35,000). A 2% change in USD rates would lead to a TT$4,494 (2011: TT$4,494) loss/gain in the
consolidated income statement.
ii) Interest rate risk
The Group’s exposure to changes in market interest rates relates primarily to the long term debt obligations, with
floating interest rates. The exposure to interest rate risk on cash held on deposit is not significant.
At the end of 2012, interest rates were fixed on approximately 72% of the borrowings (2011: 69%). The impact
on the consolidated income statement to a 50 basis points change in floating interest rates is $2,024 in 2012 and
$2,177 in 2011.
iii) Price risk
The Group is exposed to equity securities price risk because of investments held by the Group and classified on the
consolidated statement of financial position as available-for-sale. The Group is not exposed to commodity price risk.
To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification
of the portfolio is done in accordance with the limits set by the Group.
b) Credit risk
The Group is exposed to credit risk, which is the risk that may arise from its customers, clients and counterparties failing
to discharge their contractual obligations. The credit exposures arise primarily from the Group’s receivables on sales,
investments and cash held on deposit at various financial institutions.
The Group has no significant concentrations of credit risk and trades mainly with recognised, creditworthy third parties.
It is the Group’s policy that all customers trading on credit terms are subject to credit verification procedures. These
procedures are elements of a structured credit control system and include an analysis of each customer’s creditworthiness
and the establishment of limits before credit terms are set. In addition, receivable balances are monitored on an ongoing