Asus 2010 Annual Report Download - page 183

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The methods and assumptions used to estimate the fair values of the above financial
instruments are summarized below:
(1) The above financial instruments exclude cash and cash equivalents, accounts/notes
receivable, other receivables, refundable deposits, accounts/notes payable, accrued
expenses, other current liabilities and guarantee deposits received. For such financial
instruments, the fair values were determined based on their carrying values because of the
short maturities of the instruments.
(2) Financial assets at fair value through profit or loss and available-for-sale financial
instruments are regarded as quoted in an active market if quoted prices are readily and
regularly available from an exchange, dealer, broker, industry group, pricing service or
regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm’s length basis. If the market for a financial instrument is not active,
an entity establishes fair value by using a valuation technique.
(3) The fair value of convertible bonds payable is not available, and a valuation technique is
used. The assumptions used in the said valuation are the same as those used by financial
market traders when quoting their prices. However, the fair value is not expected to
equal future cash outflow.
(4) The fair values of derivative financial instruments which include unrealized gain or loss
on unsettled contracts were determined based on the amounts to be received or paid
assuming that the contracts were settled as of the reporting date.
(5) Financial assets carried at cost and held to maturity are invested in unquoted equity
instruments and mutual fund bond obligations that cannot estimate its fair value in
practice.
(6) The fair value of long-term loans was estimated by the discounted value of expected cash
flow. The discount rate used was based on the interest rate of long-term loans with similar
conditions. Based on the results of the evaluation, the fair value is close to book value.
3) Procedure of financial risk control
The Group adopted a comprehensive risk management and control system to identify all
market risks. Therefore, the management can effectively control significant market risks after
appropriately taking into consideration the economic environment, competition, and changes
of market value risk.
4) Information of material financial risk
(1) Market risk
A. The main currency for purchases and sales of the Group is the US dollar. The Group
uses the principle of natural hedge to mitigate the risk and utilizes spot or forward
contracts and currency option contracts to hedge foreign currency risk. The forward
and currency option contracts’ duration corresponds to the Group’s foreign currency
assets’ and liabilities’ due date and future cash flows. The exchange gains and losses
resulting from foreign currency assets and liabilities will be offset by the exchange