Annual Report 2006 - Venture Corporation Limited

notes to financial statements
December 31, 2006
4 FINANCIAL RISKS AND MANAGEMENT
i) Foreign currency risk
The group operates internationally, giving rise to market risk from changes in foreign exchange rates. The group
manages its foreign exchange exposure by matching revenue and costs in the relevant currencies to create a
natural hedge and also through active currency management using derivatives such as forwards and currency
options where necessary.
The company has a number of investments in foreign subsidiaries, whose net assets are exposed to currency
translation risk. No hedge has been taken up to mitigate this exposure as it does not impact cashflows.
ii)
Interest rate risk
Interest rate risk refers to the risk experienced by the company and the group as a result of the fluctuation in
interest rates. The group has cash balances placed as various forms of deposits with reputable international
financial institutions and investments in fixed rate instruments of strong financial ratings. These deposits and
investments are generally with short term maturities to provide the group the flexibility to meet working capital
and other investments needs. Although the group’s borrowings are short term in nature and bear interest at
market rates, management has the intention of refinancing the short term loan of $600,000,000 as at December
31, 2006 subsequent to year end.
iii)
Credit risk
Credit risk arising from defaults by counterparties on their contractual obligations is managed through the
application of credit approvals, credit limits and monitoring procedures. The group has adopted a policy of
only dealing with creditworthy counterparties and will require collaterals from customers with no track record
of credit history. The group performs ongoing credit evaluation of their counterparties’ financial condition and
regular meetings are conducted to monitor debt collection and credit risk exposure.
The group enters into treasury transactions only with creditworthy institutions. It seeks to invest in quality
investee companies and a majority of its fixed income investments are above investment grade. The group’s
investments in credit derivative products are exposed to default risks of a portfolio of underlying credits.
iv)
Liquidity risk
Liquidity risk refers to the risk in which the group has difficulties in meeting its short term obligations. Liquidity
risk is managed by matching the payment and receipt cycle. The group has sufficient cash from operations and
credit lines from financial institutions (Note 1) to fund its capital investments and working capital requirements.
v) Investment risk
Investment risk refers to the risk experienced by the group in its management of the return of funds invested in
financial instruments. This risk includes market price risk due to fluctuations in interest rates, foreign currency
exchange rates, prices of equities, debt securities and other financial contracts. Investment risk is managed
through established investment policies and guidelines. These policies and guidelines are reviewed regularly
taking into consideration changes in the overall market environment.
vi)
Fair value of financial assets and financial liabilities
Other than the fair values of non-current available-for-sale assets and derivative financial instruments which are
disclosed in Notes 7 and 20, the carrying amounts of the financial assets and financial liabilities reported in the
balance sheet approximate the fair values of those assets and liabilities, due to the relatively short term maturity
of these financial instruments.
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