173 Annual Report 2024 29 FINANCIAL RISK MANAGEMENT (continued) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. 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 is exposed to foreign currency risk on loans and borrowings and its operations in foreign countries that were denominated in a currency other than the respective functional currencies of the Group entities. The currencies giving rise to this risk are United States Dollars (“USD”), Hong Kong Dollars (“HKD”), Euro (“EUR”), Australian Dollars (“AUD”), and Japanese Yen (“JPY”). The Group hedges this risk by entering into cross currency swaps with notional contracts amounting to USD0.3 billion, HKD5.7 billion and JPY10.0 billion (2023: USD0.3 billion, HKD5.7 billion and JPY10.0 billion). Foreign exchange risks related to the borrowings of the Group’s USD, HKD and JPY notes, issued by Singapore Dollars (“SGD”) functional currency Group entities, have been fully hedged (2023: fully hedged) using cross currency swaps that mature on the same dates that the borrowings are due for repayment. These cross currency swaps are designated as cash flow hedges. The Group also used its EUR and AUD loans to hedge against the foreign currency risk arising from the Group’s net investments in the foreign subsidiaries. The Group applies a hedge ratio of 1:1 to its cross currency swaps to hedge its currency risk. The Group’s policy is for the critical terms of the cross currency swaps to align with the hedged item. The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency, amount and timing of their respective cash flows. The Group assesses whether the derivative designated in each hedging relationship is expected to be and has been effective in offsetting changes in cash flows of the hedged item using the critical terms method. When all critical terms match, the economic relationship is considered 100% match. In these hedge relationships, the main potential sources of ineffectiveness are: • the effect of the counterparty and the Group’s own credit risk on the fair value of the cross currency swaps, which is not reflected in the change in the fair value of the hedged cash flows attributable to the change in exchange rates; and • changes in timing of the hedged transactions.
RkJQdWJsaXNoZXIy NTkwNzg=