Cathay Pacific 2000 Annual Report Download - page 25

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CATHAY PACIFIC AIRWAYS LIM ITED ANNUAL REPORT 2000 23
Exposure to foreign currencies, interest
rates and jet fuel price movements are
regularly review ed and positions are
amended in compliance w ith 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 w hich
are regularly review ed. Risk exposures
are monitored regularly by reference to
market values.
Financial Review
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 assets are, w here
possible, financed in those foreign
currencies in w hich net operating surpluses
are anticipated, thus establishing a natural
hedge. In addition, the Group uses currency
derivatives to reduce such foreign currency
surpluses.
The use of foreign currency borrow ings
and currency derivatives 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.
Cathay Pacific: fuel hedging
US cents American gallon
per American gallon in million
0
40
80
120
160
200
0
20
40
60
80
100
Effective into wing fuel price
Volume hedged
2H20031H20032H20021H20022H20011H2001