Annual Report 2007 - Hmdatalink.com hm datalink

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Notes to the consolidated financial statementsfor the year ended 31 December 200731. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)Interest rate riskThe Group’s fair value interest rate risk relates primarily to convertible bonds (see note 19 for details of theconvertible bonds). The Group does not apply any derivatives to hedge the fair value interest rate risk.The Group’s cash flow interest rate risk relates primarily to variable-rate borrowings in respect of discountingnotes receivables (see note 17(b) for details).The interest rate profile of the Group as at the balance sheet date has been set out in the liquidity risksection of this note.Since the Group only has minimal variable-rate borrowings during the years, sensitivity analysis on theexposure to interest rates has not been presented.Currency riskThe Group does not have sales and purchases that are denominated in a currency other than the functionalcurrency of the operations to which they relate. At 31 December 2007, the Group had forward foreignexchange contracts not used for hedging with a net fair value of HK$4,681,000 (2006: Nil) recognised asderivative financial instruments.The following table details the Group’s exposure at the balance sheet date to currency risk arising fromrecognised assets or liabilities denominated in a currency other than the functional currency of the entity towhich they relate.2007 2006United States British United States Britishdollars pounds dollars poundsHK$’000 HK$’000 HK$’000 HK$’000Bank balances and cash 282,091 44 – –Notional amounts of foreign exchangecontracts not used for hedging 135,626 – – –GEELY AUTOMOBILE HOLDINGS LIMITED107ANNUAL REPORT 2 0 0 7
Notes to the consolidated financial statementsfor the year ended 31 December 200731. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)Currency risk (Continued)As the Group is mainly exposed to the effects of fluctuation in United States dollars, the following tableindicates the approximate change in the Group’s profit after tax and retained earnings. The sensitivity analysisincludes outstanding foreign currency denominated monetary items and foreign currency forward contractsnot used for hedging, and adjusts their translation at the period end for a 5% change in foreign currencyrate. The stated changes represent management’s assessment of reasonably possible changes in foreignexchange rates over the period until the next annual balance sheet date. Results of the analysis as presentedin the below table represent an aggregation of the effects on each of the group entities’ profit after tax andretained earnings measured in the respective functional currencies, translated into Hong Kong dollars at theexchange rate ruling at the balance sheet date for presentation purposes.Impact of United Statesdollars2007 2006HK$’000HK$’000Profit after tax/Retained earnings 10,084 –Fair value of financial instrumentsThe fair value of financial assets and financial liabilities are determined as follows:the fair value of financial assets and financial liabilities (including derivative instruments) with standardterms and conditions and traded on active liquid markets are determined with reference to quotedmarket bid prices and ask prices respectively; andthe fair value of other financial assets and financial liabilities (including derivative instruments andconvertible bonds) are determined in accordance with generally accepted pricing models basedon discounted cash flow analysis using prices or rates from observable current market transactionsas input. For an option-based derivative, the fair value is estimated using option pricing model (forexample, the binomial model).GEELY AUTOMOBILE HOLDINGS LIMITED108ANNUAL REPORT 2 0 0 7
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