2012 Annual Report - ZTE

ZTE CORPORATIONNotes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201254. FAIR VALUE AND FAIR VALUE HIERARCHY (continued)Liabilities measured at fair value:GroupAs at 31 December 2012Level 1 Level 2 Level 3 TotalRMB’000 RMB’000 RMB’000 RMB’000Derivative financial instruments — (116,486) — (116,486)— (116,486) — (116,486)As at 31 December 2011Level 1 Level 2 Level 3 TotalRMB’000 RMB’000 RMB’000 RMB’000Derivative financial instruments — (6,553) — (6,553)— (6,553) — (6,553)CompanyAs at 31 December 2012Level 1 Level 2 Level 3 TotalRMB’000 RMB’000 RMB’000 RMB’000Derivative financial instruments — (42,325) — (42,325)— (42,325) — (42,325)During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and notransfers into or out of Level 3 (2011: Nil).55. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk,credit risk and liquidity risk. Generally, the Group introduces conservative strategies on its risk management.The Group also enters into derivative transactions to manage the interest rate and currency risks arisingfrom the Group’s operations and its sources of finance, but is forbidden to engage in speculative activitiesfor profit-making. The board of directors reviews and agrees policies for managing each of these risks andthey are summarised as follows:Interest rate riskAt 31 December 2012, the bank loans of the Group and the Company included fixed and variable rate debts.The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s longtermdebt obligations with floating interest rates.426