Cathay Pacific 2001 Annual Report Download - page 20

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18 Cathay Pacific Airways Limited Annual Report 2001
market value of the asset, liability or transaction
being hedged.
컄Exposure to foreign currencies, interest rates
and jet fuel price movements are regularly
reviewed and positions are amended in
compliance with internal guidelines and limits.
컄To 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
컄As an international airline, the Group’s revenue
streams are denominated in a number of foreign
currencies resulting in exposure to foreign
exchange fluctuations.
컄To manage this exposure assets are, where
possible, financed in those foreign currencies
in which net operating surpluses are anticipated,
thus establishing a natural hedge. In addition,
the Group uses currency derivatives to reduce
anticipated foreign currency surpluses.
컄The use of foreign currency borrowings 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.
컄Derivative financial instruments are used to
manage the interest rate profile of the foreign
currency commitments.
1H2004 2H20042H20031H20032H20021H2002
US cents
per
American
gallon
American
gallon
in million
Cathay Pacific: fuel hedging
Effective into wing fuel price
Volume hedged
0
30
60
90
120
150
180
20
30
40
50
60
70
80
Group interest rate profile:
borrowings
0100999897
Floating
Fixed
%
0
20
40
60
80
100
FINANCIAL REVIEW