Cathay Pacific 1998 Annual Report Download - page 25

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Financial Review
23
CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998
•Derivative financial instruments which constitute a hedge do not expose the Group to market risk
since any change in their market value will be offset by an opposite change in the market value of
the asset, liability or transaction being hedged.
•Exposure to foreign currencies, interest rates and jet fuel price movements are regularly reviewed
and positions are amended in compliance with internal guidelines and limits.
•To manage credit risk, transactions are only carried out with financial institutions of high repute
and all counterparties are subject to prescribed trading limits which are regularly reviewed. Risk
exposures are monitored regularly by reference to market values.
Management of Currency and Interest Rate Exposures
•As an international airline, the Group’s revenue streams are denominated in a number of foreign
currencies resulting in exposure to foreign exchange fluctuations.
•To manage this exposure, where possible, assets are financed in those foreign currencies in which
net operating surpluses are anticipated, thus establishing a natural hedge. In addition, the Group
uses cross currency swaps to reduce such foreign currency surpluses.
•The use of foreign currency borrowings and cross currency swaps to hedge future operating
revenues is a key component of the financial risk management process as exchange differences
realised on the repayment of financial commitments are effectively matched by the change in
value of the foreign currency earnings used to make those repayments.
•Derivative financial instruments are used to manage the interest rate profile of the foreign
currency commitments.
Maturity profile by currency: gross borrowings
HK$ million
USD OthersJPYGBPCHF EURCAD
Others include AUD, BHD, HKD, IDR, KRW, NOK, NZD, PGK,
PHP, SEK, TWD, ZAR.
Within 1 year Between 1-2 years
Between 2-5 years Over 5 years
0
2,000
4,000
6,000
8,000
10,000
12,000
Interest rate profile: gross borrowings
%
Floating Fixed
9897969594
0
20
40
60
80
100