annual report - Tenaga Nasional Berhad

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d.)(ab) Foreign currencies (Cont’d.)(iii) Group companies (Cont’d.)The principal closing rates used in translation of foreign currency amounts were as follows:2008 2007Foreign currency RM RM1 US Dollar 3.3937 3.5090100 Japanese Yen 3.1250 3.03701 Sterling Pound 6.2067 7.0582100 Pakistani Rupee 4.4500 5.77491 EURO 5.0043 4.7843(ac) Financial instruments(i) DescriptionFinancial instruments carried on the balance sheet include cash and bank balances, investments, receivables,payables, leases and borrowings. The particular recognition methods adopted are disclosed in the individualpolicy statements associated with each item.The Group and the Company are also parties to financial instruments that manage exposure to fluctuations inforeign currency exchange and interest rate. These financial instruments, which mainly comprise foreign currencyforward contracts, cross currency swap contracts and interest rate swap contracts, are not recognised in thefinancial statements. Derivative financial instruments are used in the Group and the Company’s risk managementof foreign currency and interest rate risk exposure of its financial liabilities.(ii)Financial instruments not recognised on the balance sheetForeign currency forward contractsThe Group enters into foreign currency forward contracts to protect the Group from movements in exchangerates by establishing the rate at which a foreign currency asset or liability will be settled.Exchange gains and losses on contracts are recognised in the income statement at time of settlement.Cross currency swap contractsCross currency swaps are entered into to manage exposure to movements in exchange rates by establishingthe currency at which a foreign currency liability will be settled.The notional principal of these contracts are off balance sheet. Any differential in terms of exchange gainsor losses are recognised in the income statement in the same period as the exchange differences on theunderlying hedged items.Currency optionsCurrency options are designed to manage the Group’s exposure to protect the Group from movements inforeign currency. The notional principal of the contract is off balance sheet. The premium paid is expensedto the income statement when it is incurred. Gains or losses on early termination of currency options or onrepayment of the borrowing are taken to the income statement.[ Tenaga Nasional Berhad ] [ Annual Report 2008 ]197