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2008Increase/decreasein Peso to Effect on income before tax Effect on equityUS Dollar exchange rate Increase (decrease) Increase (decrease)(In Thousand Pesos)+.40 (P37,971) (P4,291)-.40 37,971 4,291The movement on the income before tax is a result of a change in the fair value ofderivative financial instruments not designated in a hedging relationship and monetaryassets and liabilities denominated in US dollars, where the functional currency of theGroup is Philippine Peso. Although the derivatives have not been designated in a hedgerelationship, they act as economic hedge and will offset the underlying transactionswhen they occur.The movement in equity arises from changes in the fair values of derivative financialinstruments designated as cash flow hedges.In addition, the consolidated expected future payments on foreign currency-denominatedpurchase orders related to capital projects amounted to USD274.51 million, USD255.79million, and USD264.66 million as of December 31, 2010, 2009 and 2008, respectively.The settlement of these liabilities is dependent on the achievement of project milestonesand payment terms agreed with the suppliers and contractors. Foreign exchangeexposure assuming a +/-40 centavos in 2010, 2009 and 2008 movement in PHP toUSD rate on commitments amounted to P109.80 million, P102.32 million and P105.86million gain or loss, respectively.The Globe Group’s foreign exchange risk management policy is to maintain a hedgedfinancial position, after taking into account expected USD flows from operations andfinancing transactions. Globe Telecom enters into short-term foreign currency forwardsand long-term foreign currency swap contracts in order to achieve this target.28.2.2 Credit RiskApplications for postpaid service are subjected to standard credit evaluation and verificationprocedures. The Credit Management unit of the Globe Group continuously reviews credit policiesand processes and implements various credit actions, depending on assessed risks, to minimizecredit exposure. Receivable balances of postpaid subscribers are being monitored on a regularbasis and appropriate credit treatments are applied at various stages of delinquency. Likewise, netreceivable balances from carriers of traffic are also being monitored and subjected to appropriateactions to manage credit risk. The maximum credit exposure relates to receivables net of anyallowances provided.With respect to credit risk arising from other financial assets of the Globe Group, which comprisecash and cash equivalents, short-term investments, AFS financial investments, HTM investments,and certain derivative instruments, the Globe Group’s exposure to credit risk arises from the defaultof the counterparty, with a maximum exposure equal to the carrying amount of these instruments.The Globe Group’s investments comprise short-term bank deposits and government securities.Credit risk from these investments is managed on a Globe Group basis. For its investments withbanks, the Globe Group has a counterparty risk management policy which allocates investmentlimits based on counterparty credit rating and credit risk profile.The Globe Group makes a quarterly assessment of the credit standing of its investmentcounterparties, and allocates investment limits based on size, liquidity, profitability, and assetquality. For investments in government securities, these are denominated in local currency andare considered to be relatively risk-free. The usage of limits is regularly monitored. For its derivativecounterparties, the Globe Group deals only with counterparty banks with investment grade ratingsand large local banks. Credit ratings of derivative counterparties are reviewed quarterly.161