Crucial 2012 Annual Report Download - page 277

32
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(b) Financial risk information
(i) Market risk
All derivative financial instruments are intended to manage fluctuations in foreign exchange rates and
interest rates. Gains or losses from these managing instruments are likely to be offset by gains or losses
from the hedged items. Thus, these market risks are believed to be low.
(ii) Credit risk
The Company signed a “Supply Agreement” with NTC and Micron. Under these agreements, the Company
commits to supply its production mostly to NTC and Micron. As sales are made to these two major
customers, credit risk is therefore concentrated on these major customers. Based on the results of the
Company's assessment of this risk and the good credits of these two major customers, its exposure to
credit risk is low.
Credit risks of financial instrument transactions represent the positive net settlement amount of those
contracts with positive fair values at the balance sheet date. The positive net settlement amount represents
the loss to the Company if the counter-parties breached the contracts. The banks, which are the counter-
parties to the foregoing derivative financial instruments, are reputable financial institutions. Management
believes its exposure related to the potential default by those counter-parties is low.
(iii) Liquidity risk
The Company might not have sufficient liquidity to meet its short term financial commitments. However,
the Company has unused credit facilities for short-term loans from banks and related parties and
management's plans to improve liquidity as described in note 25 (c).
(iv) Interest rate risk
Interest rate risk arises from short-term and long-term loans. Loans issued at variable rates expose the
Company to cash flow interest rate risk. If the market interest rate increases by 1%, the cash outflow of
the Company would increase by $629,898. The Company manages its cash flow interest rate risk by using
floating-to-fixed interest-rate swaps. Such interest rate swaps are expected to manage the interest rate
fluctuation risk on conversion of loans with floating rates to loans with fixed rates.