2012 Annual Report - ZTE

ZTE CORPORATIONNotes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201255. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)Foreign currency risk (continued)The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possiblechange in the USD and EUR exchange rate, with all other variables held constant, of the Group’s profitbefore tax (due to changes in the fair value of monetary assets and liabilities). There would be no changein other components of equity.2012Increase/(decrease) inexchange rateIncrease/(decrease)in profitbefore tax% RMB’000If RMB weakens against USD 3% 31,570If RMB strengthens against USD (3%) (31,570)If RMB weakens against EUR 5% 155,594If RMB strengthens against EUR (5%) (155,594)2011Increase/(decrease) inexchange rateIncrease/(decrease)in profitbefore tax% RMB’000If RMB weakens against USD 3% (37,165)If RMB strengthens against USD (3%) 37,165If RMB weakens against EUR 5% 210,820If RMB strengthens against EUR (5%) (210,820)Credit riskThe Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customerswho wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balancesare monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, otherreceivables and derivative investments, arises from default of the counterparty, with a maximum exposureequal to the carrying amounts of these instruments. The Group is also exposed to credit risk through thegranting of financial guarantees.428