BBK annual report eng 21.5.5

30 Interest rate risk management (continued)Assets31 December 2004 31 December 2003Effective interest rate % Effective interest rate %BD KD US$ BD KD US$Treasury bills 1.3 2.3 - 1.1 2.7 -Deposits and due from banks and financial institutions 1.5 2.7 1.5 1.3 2.3 1.3Loans and advances to customers (a) 5.8 4.8 2.3 6.0 5.0 2.1Non-trading investment securities 1.7 2.8 3.0 1.4 2.8 3.8LiabilitiesDeposits and due to banks and other financial institutions 1.3 2.4 1.7 0.8 2.6 1.1Term loans - - - - - 1.8Medium term deposits with banks - - 2.0 - - 1.7Customers’ current, savings and other deposits (b) 0.7 0.9 1.5 0.7 1.5 1.4(a) The effective interest rate for loans and advances to customers has been computed by excluding non-performing loans.(b) The effective interest rates for deposits have been computed by excluding non-interest bearing accounts which form a small proportion of such deposits.31 Currency riskThe functional currency of the Group is the Bahraini Dinar.The Group had the following significant net exposures denominated in foreign currencies as of the balance sheet date:2004 2003BD ’000 BD ’000equivalentequivalentlong (short)long (short)US dollars 66,816 60,853Euro (1,449) 302G.C.C. currencies 164 (163)Others (161) 478As the Bahraini Dinar is pegged to the US Dollar, positions in US Dollars are not considered to represent significant currency risk. The Board hasestablished levels of currency risk by setting limits on currency position exposures. Positions are monitored on a daily basis to ensure that they aremaintained within established limits. The Group uses forward foreign exchange contracts and currency swaps to hedge against specifically identifiedcurrency risks.32 Equity price riskEquity price risk arises from the change in fair values of equity investments. The Group manages this risk through diversification of investments interms of geographical distribution and industry concentration.Annual Report 2004 56 | 57