Notes to Financial Statements

Middle East Development Singapore Ltd.Annual Report 2008 49Notes to Financial Statements30 June 20084 FINANCIAL INSTRUMENTS, FINANCIAL ASSETS AND CAPITAL RISKS MANAGEMENT (Cont’d)(b)Financial risk management policies and objectives (cont’d)There has been no change to the Group’s exposure to these fi nancial risks or the manner in which itmanages and measures the risk. Market risk exposures are measured using sensitivity analysis indicatedbelow.i) Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resultingin fi nancial loss to the Group. The Group has adopted a policy of only dealing with creditworthycounterparties and obtaining suffi cient collateral where appropriate, as a means of mitigating therisk of fi nancial loss from defaults. The Group’s exposure and the credit ratings of its counterpartiesare continuously monitored and the aggregate value of transactions concluded is spread amongstapproved counterparties. Credit exposure is controlled by the counterparty limits that are reviewedand approved by the management on a regular basis.Trade receivables consist of a large number of customers, spread across diverse industries andgeographical areas. Ongoing credit evaluation is performed on the fi nancial condition of customers.The Group’s exposure to credit risk is infl uenced mainly by the individual characteristics of eachcustomer. The default risk of the country and industry in which customers operate also has aninfl uence on credit risk but to a lesser extent. The Group has no signifi cant concentration of creditrisk.The carrying amount of fi nancial assets recorded in the fi nancial statements, net of any allowances forlosses, represents the Group’s maximum exposure to credit risk without taking account of the valueof any collateral obtained.Further details of credit risks on trade and other receivables are disclosed in Note 8.ii)Interest rate risk managementThe primary source of the Group’s interest rate risk relates to interest bearing bank deposits and itsborrowings from banks and fi nancial institutions. The interest rates on the Group’s borrowings aredisclosed in Note 15 to the fi nancial statements. As certain rates are based on interbank offer rates,the Group is exposed to cash fl ow interest rate risk. This risk is not hedged. Interest bearing bankdeposits are short–term in nature and given the current interest rate level, any variation in the interestrates are not expected to have a material impact on the net income of the Group.Interest rate sensitivityA 50 basis point increase or decrease is used when reporting interest rate risk internally to keymanagement personnel and represents management’s assessment of the possible change in interestrates. If interest rates had been 50 basis points higher or lower and all other variables were heldconstant, there would have been no signifi cant impact on the fi nancial statements of the Group andthe Company for the current and previous fi nancial years.iii)Foreign currency risk managementThe Group transacts business in various foreign currencies, including the Chinese Reminbi, Euro,Malaysian Ringgit, Swiss Franc, United Arab Emirates Dirham and United States dollar and thereforeis exposed to foreign exchange risk.The Group does not enter into derivative foreign exchange contracts for trading purposes.