Financial Statements - United Bank Limited

NOTES TO AND FORMING PART OF THE UNCONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2012
5.14.2 Foreign currency transactions
Transactions in foreign currencies are translated to rupees at the foreign exchange rates prevailing on the transaction
date. Monetary assets and liabilities in foreign currencies are expressed in rupee terms at the rates of exchange
prevailing at the statement of financial position date. Forward foreign exchange contracts and foreign bills purchased are
valued at forward rates applicable to their respective maturities.
Non-monetary assets and liabilities in foreign currencies are expressed in rupee terms at the rates of exchange
prevailing at the date of initial recognition of the non-monetary assets / liabilities.
5.14.3 Foreign operations
The assets and liabilities of foreign operations are translated to rupees at exchange rates prevailing at the statement of
financial position date. The results of foreign operations are translated at the average rate of exchange for the year.
5.14.4 Translation gains and losses
Translation gains and losses are taken to the profit and loss account, except those arising on translation of the net
investment in foreign branches which are taken to capital reserves (Exchange Translation Reserve) until the disposal of
the net investment, at which time these are recognised in the profit and loss account.
5.14.5 Contingencies and commitments
Commitments for outstanding forward foreign exchange contracts are disclosed in these unconsolidated financial
statements at contracted rates. Contingent liabilities / commitments denominated in foreign currencies are expressed in
rupee terms at the rates of exchange prevailing at the statement of financial position date.
5.15 Financial instruments
5.15.1 Financial assets and liabilities
Financial assets and liabilities carried on the statement of financial position include cash and bank balances, lendings to
financial institutions, investments, advances, certain receivables, bills payable, borrowings from financial institutions,
deposits, subordinated loans and certain other payables. The particular recognition methods adopted for significant
financial assets and financial liabilities are disclosed in the individual policy notes associated with them.
5.15.2 Derivative financial instruments
Derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is
entered into and are subsequently re-measured at fair value using appropriate valuation techniques. All derivative
financial instruments are carried as assets when their fair value is positive and liabilities when their fair value is negative.
Any change in the fair value of derivative financial instruments is taken to the profit and loss account.
5.15.3 Hedge accounting
The Bank makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit risks. In
order to manage particular risks, the Bank may undertake a hedge. The Bank applies hedge accounting for transactions
which meet the specified criteria.
At the inception of the hedging relationship, the Bank formally documents the relationship between the hedged item and
the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the
method that will be used to assess the effectiveness of the hedging relationship. A formal assessment is also undertaken
to ascertain whether the hedging instrument is expected to be highly effective in offsetting the designated risk in the
hedged item. A hedge is regarded as highly effective if changes in the fair value or cash flows attributable to the hedged
risk during the period for which the hedge is designated are expected to be offset by between 80% to 125% by
corresponding changes in the fair value or cash flows attributable to the hedging instrument.
Cash flow hedges
For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedge is
recognised initially in the statement of changes in equity, and recycled to the profit and loss account in the periods when
the hedged item will affect profit or loss. Any gain or loss on the ineffective portion of the hedging instrument is
recognised in the profit and loss account immediately.
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