33. Financial risk management objectives and policies
The Group and the Company are exposed to financial risks arising from its operations
and the use of financial instruments. The key financial risk includes market risk (interest
rate risk and foreign currency risk), credit risk and liquidity risk arising from its business
activities. The Group’s overall risk management strategy seeks to minimise the potential
material adverse effects from these exposures. The Group uses financial instruments
such as interest rate swaps and forward currency contracts to hedge certain financial risk
exposures. It is the Group’s policy that no trading in derivative financial instruments shall
be undertaken. Exposure to foreign currency risks is also hedged naturally where possible.
The Group’s policy on financial authority limit seeks to mitigate risks by setting out the
threshold of approvals required for entry into contractual obligations and investments.
The Board has overall responsibility for the establishment and oversight of the Group’s
risk management framework. Risk management is carried out under policies approved by
the Board. The Board reviews and approves policies for managing each of these risks and
they are summarised below.
There has been no change to the Group’s exposure to these financial risks or the manner
in which it manages and measures the risks.
(a) Market risk
Market risk is the risk that changes in market prices, such as interest rates and
foreign exchange rates will affect the Group’s income or the value of its holdings of
financial instruments. The objective of market risk management is to manage and
reduce market risk exposures within acceptable parameters.
(i)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s
and the Company’s financial instruments will fluctuate because of changes in
market interest rates. The Group’s exposures to interest rates relates primarily
to interest-earning financial assets and interest-bearing financial liabilities,
which includes bank balances and borrowings with financial institutions. The
Group’s policy is to maintain an efficient and optimal interest cost structure
using a mix of fixed and floating rate borrowings as well as long and short-
term borrowings.
The Group seeks to minimise its exposure to interest rate fluctuations through
the use of interest rate swaps, where appropriate, over the duration of its
borrowings. The Group classifies these interest rate swaps as cash flow
hedges. The details of the interest rates relating to interest earning financial
assets and interest bearing financial liabilities are disclosed in various notes to
the financial statements.
NOTES TO THE FINANCIAL
STATEMENTS
For the financial year ended 30 June 2015
ASL Marine Holdings Ltd. /Annual Report 2015
148
