BT 1998 Annual Report Download - page 63

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N O T E S T O TH E F I N A N C I A L S TAT E M E N T
19. Financial instruments and risk management (continued)
(c) Concentrations of credit risk and credit exposures of financial instruments
The group considers that it is not exposed to major concentrations of credit risk. The group, however, is exposed to credit-
related losses in the event of non-performance by counterparties to financial instruments, but does not expect any
counterparties to fail to meet their obligations. Based on interest and exchange rates in effect at 31 March 1998, the group
had a maximum credit exposure of £118m (1997 – £113m) to one counterparty under foreign currency and interest rate swap
agreements. The group limits the amount of credit exposure to any one counterparty. The group does not normally see the need
to seek collateral or other security.
(d) Fair value of financial instruments
The following table shows the carrying amounts and fair values of the group’s financial instruments at 31 March 1998 and 1997.
The carrying amounts are included in the group balance sheet under the indicated headings, with the exception of derivative
amounts related to borrowings, which are included in debtors or other creditors as appropriate. The fair values of the financial
instruments are the amount at which the instruments could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale.
Carrying amount Fair value
))))))))))!!!!0051111!!!0051111
1998 1997 1998 1997
£m £m £m £m
))))))))))!!!!0051111!!!0051111
Non-derivatives:
Assets
Cash at bank and in hand 62 26 62 26
Short-term investments (i) 731 2,974 731 2,974
Liabilities
Short-term borrowings (ii) 550 221 550 221
Long-term borrowings, excluding finance leases (iii) 4,210 2,953 4,665 3,168
Derivatives relating to investments and borrowings (net) (iv):
Assets 48 79 –11
Liabilities ––114 –
00000000001!!!0051111!!!0051111
(i) The fair values of listed short-term investments were estimated based on quoted market prices for those investments. The
carrying amount of the other short-term deposits and investments approximated to their fair values due to the short maturity of
the instruments held.
(ii) The fair value of short-term bor rowings approximated to carrying value due to the short maturity of the instruments.
(iii) The fair value of the group’s bonds, debentures, notes and other long-term borrowings has been estimated on the basis of
quoted market prices for the same or similar issues with the same maturities where they existed, and on calculations of the
present value of future cash flows using the appropriate discount rates in effect at the balance sheet dates, where market
prices of similar issues did not exist.
(iv) The fair value of the group’s outstanding foreign currency and interest rate swap agreements was estimated by calculating
the present value, using appropriate discount rates in effect at the balance sheet dates, of affected future cash flows translated,
where appropriate, into pounds sterling at the market rates in effect at the balance sheet dates.