Notes to the Financial Statements - Cahaya Mata Sarawak Bhd

Notes to the Financial Statements
For the fi nancial year ended 31 December 2011
43. Financial risk management objectives and policies (contd.)
(c) Interest rate risk
Interest rate risk is the risk that the fair value or future cash fl ows of the Group’s and the Company’s
fi nancial instruments will fl uctuate because of changes in market interest rates.
The Group’s and the Company’s exposure to market risk for changes in interest rates arise primarily
from their fi xed/treasury deposits and loans and bank borrowings. The Group and the Company’s
fi xed/treasury deposits and borrowings at fl oating rates are contractually re-priced at intervals of less
than 6 months (2010: less than 6 months) from the reporting date.
Sensitivity analysis for interest rate risk
At the reporting date, it is estimated that a hundred basis points increase in interest rate, with all other
variables held constant, would decrease the Group’s profi t net of tax by approximately RM1,017,076
(2010: RM2,188,239), arising mainly as a result of higher interest expense on net fl oating borrowing
position. A decrease in interest rate would have had the equal but opposite effect on the aforesaid
amount, on the basis that all other variables remain constant.
(d) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will
fl uctuate because of changes in foreign exchange rates.
The Group has exposure to foreign exchange risk as a result of transactions denominated in foreign
currencies, arising from normal trading activities. It is the Group’s policy to hedge these risks where
the exposures are certain and cost-effi cient.
The currencies giving rise to this risk are primarily United States Dollar (USD) and Euro. Exposure to
foreign currency risk is monitored on an ongoing basis to ensure that the exposure is at an acceptable
level. At 31 December 2011, the Group and the Company have not entered into any forward foreign
currency contracts.
Sensitivity analysis for foreign currency risk
The following table demonstrates the sensitivity of the Group’s profi t net of tax to a reasonably possible
10% strengthening of the USD and Euro exchange rates against the functional currency of the Group,
with all other variables held constant.
Group
Profi t net of tax
2011 2010
RM’000 RM’000
United States Dollars 3,368 6,411
Euro 513 1,279
A 10% weakening of the above foreign currencies against the underlying functional currencies at the
reporting date would have had the equal but opposite effect on the above currencies to the amounts
shown above, on the basis that all other variables remain constant.
Annual Report 2011 161