Singapore Airlines 2009 Annual Report Download - page 196

194
NOTES TO THE FINANCIAL STATEMENTS
31 March 2009
37 Financial Instruments (in $ million) (continued)
(b) Fair values
The fair value of a fi nancial instrument is the amount at which the instrument could be exchanged
or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a
forced or liquidation sale.
Financial instruments carried at fair value
The Group and Company have carried all investment securities that are classifi ed as available-for-sale
fi nancial assets and all derivative instruments at their fair values.
The fair values of jet fuel swap contracts are the mark-to-market values of these contracts. The fair
values of jet fuel option contracts are determined by reference to available market information and
the Black-Scholes option valuation model. As the Group hedges its jet fuel requirements in Mean of
Platts Singapore Jet Kerosene (“MOPS”) and that the majority of the Group’s fuel uplifts are in MOPS,
the MOPS price (2009: USD 57.47/BBL, 2008: USD 128.53/BBL) is used as the input for market fuel
price to the Black-Scholes option valuation model. Consequently, the annualised volatility (2008-09:
60.30%, 2007-08: 29.31%) of the jet fuel swap and option contracts is also estimated with daily
MOPS price. The continuously compounded risk-free rate estimated as average of the past 12 months
Singapore Government Securities benchmark issues’ one-year yield (2008-09: 0.88%, 2007-08:
1.97%) was also applied to each individual jet fuel option contract to derive their estimated fair values
as at balance sheet date.
The fair values of gasoil and regrade swap contracts are also determined by reference to available
market information and are the mark-to-market values of these swap contracts. As the Group hedges
in InterContinental Exchange (“ICE”) gasoil and MOPS jet-fuel-ICE gasoil regrade, the ICE gasoil futures
contract price and the MOPS price are used as the mark-to-market prices.
The fair value of forward currency contracts is determined by reference to current forward prices for
contracts with similar maturity profi les. The fair values of foreign currency option contracts, interest
rate swap contracts and interest rate cap contracts are determined by reference to valuation reports
provided by counterparties.
The fair value of cross currency swap contracts is determined based on quoted market prices or dealer
quotes for similar instruments used.
Financial instruments whose carrying amounts approximate fair value
The carrying amounts of the following fi nancial assets and liabilities approximate their fair values due
to their short-term nature: cash and bank balances, bank overdrafts, funds from subsidiary companies,
amounts owing to/by subsidiary and associated companies, trade debtors, other debtors, trade and
other creditors.