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MACQUARIE UNIT TRUST SERIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 4 Financial risk management (continued) b) Market risk (continued) i) Price risk (continued) MACQUARIE ASIA NEW STARS FUND Location of stock exchanges Reasonable possible shift % Year ended 30 June 2013 Year ended 30 June 2012 Impact to statements of Reasonable Impact to statements of comprehensive income possible shift comprehensive income US$ % US$ Hong Kong +10/-10 2,230,361/(2,230,361) +10/-10 1,544,978/(1,544,978) Indonesia +10/-10 243,162/(243,162) +10/-10 246,980/(246,980) Philippines +10/-10 93,229/(93,229) +10/-10 390,679/(390,679) South Korea +10/-10 897,639/(897,639) +10/-10 716,225/(716,225) Taiwan +10/-10 839,666/(839,666) +10/-10 468,143/(468,143) Malaysia +10/-10 144,307/(144,307) +10/-10 25,736/(25,736) Thailand +10/-10 284,303/(284,303) +10/-10 66,847/(66,847) India +10/-10 489,778/(489,778) +10/-10 402,709/(402,709) Singapore +10/-10 358,132/(358,132) +10/-10 57,275/(57,275) United States +10/-10 69,388/(69,388) +10/-10 - ii) Interest rate risk The majority of the Sub-Funds’ financial assets and liabilities are non-interest bearing. As a result, the Sub- Funds are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. iii) Foreign exchange risk Each of the Sub-Funds may hold both monetary and non monetary assets and liabilities denominated in currencies other than the United States dollar. The foreign exchange risk related to non-monetary assets is a component of price risk. Foreign exchange risk arises as the value of monetary securities denominated in other currencies will fluctuate due to changes in exchange rates. The majority of the Sub-Funds monetary assets and liabilities are in United States dollar. Therefore the Sub- Funds are not exposed to significant amounts of risk due to fluctuations in foreign currency exchange rates. c) Credit risk Credit risk arises from cash and cash equivalents, deposits with banks and other financial institutions and amounts due from brokers. None of these assets are impaired nor past due but not impaired. The Sub-Funds limit exposure to credit risk by transacting the majority of its securities and contractual commitment activities with broker-dealers, banks and regulated exchanges with high credit ratings that the Manager considers to be well established. The exposure to credit risk for cash and cash equivalents and deposits with banks is low as all counterparties have a rating of at least AA- (2012: A-) as determined by Standard and Poor’s rating agency. Other than for cash and cash equivalents the Sub-Funds do not have a concentration of credit risk that arises from an exposure to a single counterparty. Furthermore, the Sub-Funds do not have a material exposure to a group of counterparties which are expected to be affected similarly by changes in economic or other conditions. The maximum exposure to credit risk at the reporting date is the carrying amount of cash and cash equivalents and other financial assets. In accordance with the policy of each of the Sub-Funds, the Manager monitors the credit position of each of the Sub-Funds on a monthly basis. 23
MACQUARIE UNIT TRUST SERIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 4 Financial risk management (continued) d) Liquidity risk The Sub-Funds are exposed to daily cash redemptions of redeemable units. It therefore invests the majority of its assets in investments that are traded in ordinarily active markets and can generally be liquidated within a short period of time. The Sub-Funds may, from time to time, invest in derivative contracts traded over the counter, which are not traded in an organised market and may be illiquid. As a result, the Sub-Fund may not be able to realise its investments in these instruments quickly at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as a deterioration in the creditworthiness of any particular issuer. No such investments were held at the end of the reporting period. In accordance with the Fund’s policy, the risk management department of the Manager monitors the Sub- Funds’ liquidity position on a daily basis. This risk is managed by: • monitoring liquidity with respect to liquid assets and large single client holdings • restricting exposure to illiquid, long-dated stock floats. Redemption of units in each of the Sub-Funds is not subject to any notice period requirement. Units in each of the Sub-Funds are redeemable on a daily basis. If each of the Sub-Funds receives withdrawal requests comprising more than 10% of units in issue, the Sub-Fund may pro rata the withdrawal request and stagger the processing of remaining unsatisfied withdrawal requests. The Manager or the Trustee may suspend the realisation of units or delay the payment of realisation proceeds during any periods in which the determination of the Net Asset Value of the Sub-Fund is suspended. All other liabilities are payable within 30 days. e) Fair value estimation The carrying amounts of all the Sub-Funds’ financial assets and financial liabilities at the end of each reporting period approximated their fair values as all financial assets and liabilities not fair valued are short term in nature. The Sub-Funds classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in making the measurements. The fair value hierarchy has the following levels: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes 'observable' requires significant judgement by the Manager. The Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. 24
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