Kia 2012 Annual Report Download - page 98
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The Company’s activities are exposed to a variety of financial risks: credit risk, liquidity risk and market risk (comprised of foreign
exchange risk and interest rate risk). The treasury department monitors and manages the financial risk arising from the Company’s
underlying operations in accordance with the risk management policies and procedures authorized by the board of directors.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. The Company has transacted with customers before evaluating on their credit rating and have their
collaterals to control customers on default.
(b) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. Management believes the Company maintains adequate sources of
liquidity to settle short-term financial liabilities. In addition, based on periodic analysis of expected cash outflows, the Company
also considers other alternatives, including seeking additional external financing or disposition of financial instruments for
investment purpose, to mitigate liquidity risk.
(c) Market risk
Market risk is the risk of fluctuations in fair value of financial instrument and future cash flow by changes of market price. The
purpose for managing market price is to optimize profits, while manage and control on exposure to market risk within acceptable
limits.
(i) Foreign exchange risk
The Company is exposed to foreign exchange risk arising from high proportion of export in sales amount, which is denominated in
foreign currencies. The Company’s primary exposure is to the US dollar and Euro and the Company manages to minimize financial
risk on fluctuations in foreign exchange in order to stabilize operating activities. The Company consistently evaluates on various
foreign exchange risk according to the Company’s own guideline for foreign exchange and transaction policy. If necessarily, the
Company may enter into foreign currency forwards contracts to hedge its foreign currency risk and strictly limit on speculative
transaction.
(ii) Interest rate risk
The Company’s asset and liability is exposed to interest rate risk on deposits and loans. In order to minimize actual Interest
cost, the Company continuously monitors current status of market interest rate, make a prediction on market data and reviews
on method for borrowing and joining financial instruments on deposit. Also, the Company’s management monitors the level of
interest rates and maintains the balance of borrowings at variable rates and fixed rates.
(d) Management of capital risk
The fundamental goal of capital management is to maintain on financial structure. As for this to be maintained, the Company use
debt ratio as indicator of capital management. The debt ratio is calculated as total liability divided by total equity.
For the years ended December 31, 2012 and 2011