Creative 2012 Annual Report Download - page 56

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CREATIVE TECHNOLOGY LTD AND ITS SUBSIDIARIES
29. FINANCIAL RISK MANAGEMENT
The Group is exposed to nancial risks arising from its operations and the use of nancial instruments. The Group’s
principal nancial instruments, other than foreign exchange contracts, comprise bank loans, investments, cash at bank and
short-term bank deposits. All nancial transactions with the banks are governed by banking facilities duly accepted with
Board of Directors’ resolutions, with banking mandates, which dene the permitted nancial instruments and facility limits,
approved by the Board of Directors. The Group has various other nancial assets and liabilities such as trade receivables
and trade payables, which arise directly from its operations.
It is the Group’s policy not to engage in foreign exchange and/or derivatives speculation or trading or enter into any complex
foreign exchange or derivatives transactions. It is not in the interest of the Group to speculate or trade in treasury instruments.
From time to time, the Group enters into forward exchange contracts to reduce its exposure to currency translation gains
and losses.
The main nancial risks arising from the Group’s operations and the use of nancial instruments are market risk (including
price risk, interest rate risk and currency risk), credit risk and liquidity risk. Management does not view the Company on a
standalone basis and therefore all risks relevant to the Group are considered and managed at the Group level. The policies
for managing each of these risks at the Group level are summarised below.
(a) Market risk
(i) Price risk
As part of its long-term business strategy, from time to time, the Group makes strategic equity investments in companies
that can provide the Group with technologies or products that management believes will give the Group a competitive
advantage in the markets in which the Group competes. The Group has strategic investments in quoted equity shares. The
Group manages the risk of unfavourable changes by cautious review of the investments before investing and continuous
monitoring of the performance of investments held and assessing market risk relevant to which the investments operate.
The market value of these investments will uctuate with market conditions. The table below summarises the impact to
the Group’s fair value reserve in equity arising as a result of a 10% increase/decrease in prices of quoted equity securities.
This analysis assumes that all other variables remain constant.
NOTES TO THE FINANCIAL STATEMENTS
For the nancial year ended 30 June 2012
Equity
10% increase 10% decrease
US$’000 US$’000
Group
2012
Quoted equity securies 1,650 (1,650)
2011
Quoted equity securies 2,320 (2,320)
(ii) Interest rate risk
The Group has balances placed with reputable banks and nancial institutions. The Group manages its interest rate risks
on its interest income by placing the cash balances in varying maturities and interest rate terms with due consideration to
operating cash ow requirements and optimising yield.
(iii) Currency risk
The functional currency of the Company is predominantly the US dollar and accordingly, gains and losses resulting from the
translation of nancial assets and liabilities denominated in currencies other than the US dollar are reected in the determination
of net loss. From time to time, the Group enters into forward exchange contracts to reduce its exposure to currency translation
gains and losses. Forward exchange contracts are marked to market each period and the resulting gains and losses are included
in the determination of net loss. No forward exchange contracts were outstanding as at 30 June 2012 and 30 June 2011.