MS AR 2018 (1)

NOTES TO THE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2018
45.3 Market risk
Market risk is the risk that changes in market prices, such as currency risk, interest rates and equity prices will
affect the Company’s income or the value of its holdings of the financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable parameters, while optimizing
return.
i) Currency risk:
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of change in foreign exchange rates. The Company is mainly exposed to currency risk on
foreign creditors which are denominated in currency other than the functional currency of the Company.
Rupees 2018 2017
The Company’s exposure to foreign currency risk is as follows:
Foreign creditors
- Outstanding letters of credit - U.S. Dollar (USD) – 1,984,496
- Pakistani Rupee to U.S. Dollar exchange rate as at June 30, – 104.93
Sensitivity analysis:
At the reporting date, if the Pakistani rupee had reasonably possibly strengthened / weakened by 5%
against USD, it would have affected the measurement of financial instruments denominated in foreign
currency and affected profit after taxation by the amounts shown below at the reporting date.
Rupees 2018 2017
Net effect on profit after tax due to:
- Increase / decrease in foreign creditors (USD) – 10,411,658
The analysis assumes that all other variables, in particular interest rates, remain constant and ignores
any impact of forecast sales and purchases.
Currency risk management:
The Company manages currency risk by maintaining balance between sight and deferred letters of
credit and switching amongst them when required necessary.
ii)
iii)
Price risk:
Price risk represents the risk that the fair value or future cash flows of financial instrument will fluctuate
because of changes in market prices, other than those arising from interest rate risk or currency risk,
whether those changes are caused by factors specific to the individual financial instruments or its issuer,
or factors affecting all similar financial instruments trading in market. The Company does not hold any
investments which exposed it to price risk.
Interest rate risk:
The interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. Majority of the interest rate exposure arises
from long-term financing, short-term loans from banking companies, saving accounts and term deposit
receipts. At the reporting date the interest rate risk profile of the Company’s interest bearing financial
instruments is:
130 MUGHAL IRON & STEEL INDUSTRIES LIMITED