Cathay Pacific 2010 Annual Report Download - page 90

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88
32. Financial risk management (continued)
(c) Market risk
(i) Foreign currency risk
The Group’s revenue streams are denominated in a number of foreign currencies resulting in exposure to
foreign exchange rate fluctuations. In this respect, it is assumed that the pegged rate between the Hong
Kong dollar and the United States dollar would be materially unaffected by any changes in movement in
value of the United States dollar against other currencies. The currencies giving rise to this risk in 2010 are
primarily US dollars, Euros, New Taiwan dollars, Australian dollars, Renminbi and Japanese yen (2009: US
dollars, Euros, New Taiwan dollars, Singapore dollars, Renminbi and Japanese yen). Foreign currency risk is
measured by employing sensitivity analysis, taking into account current and anticipated exposures. To
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. The 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.
At the reporting date, the exposure to foreign currency risk was as follows:
2010
USD
HK$M
EUR
HK$M
TWD
HK$M
AUD
HK$M
RMB
HK$M
JPY
HK$M
Group
Trade and other receivables 5,998 521 336 215 404 497
Liquid funds 17,832 264 75 14 2,444 249
Long-term loans (6,340) – – – – (1,429)
Obligations under finance leases (19,391) (3,253) – – – –
Trade and other payables (3,225) (282) (81) (152) (564) (232)
Currency derivatives at notional value 36,285 (1,726) (6,072) (4,111) (10,449) (10,342)
Net exposure 31,159 (4,476) (5,742) (4,034) (8,165) (11,257)
2009
USD
HK$M
EUR
HK$M
TWD
HK$M
SGD
HK$M
RMB
HK$M
JPY
HK$M
Group
Trade and other receivables 4,536 440 291 37 385 398
Liquid funds 7,956 58 47 1,395 1,882 163
Long-term loans (6,702) (52) – (3,458) – (1,379)
Obligations under finance leases (19,281) (4,062) – – – –
Trade and other payables (4,168) (240) (71) (57) (372) (170)
Currency derivatives at notional value 15,585 370 (1,556) 1,235 (3,452) (6,681)
Net exposure (2,074) (3,486) (1,289) (848) (1,557) (7,669)
Notes to the Accounts SUPPLEMENTARY INFORMATION