Singapore Airlines 2011 Annual Report Download - page 175

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ANNUAL REPORT 2010/2011 173
NOTES TO THE FINANCIAL STATEMENTS
31 March 2011
37 Financial Instruments (in $ million) (continued)
(b) Fair values (continued)
Financial instruments carried at fair value (continued)
Determination of fair value
The Group and the Company have carried all investment securities that are classified as available-for-
sale financial 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 (2011: USD133.22/BBL, 2010: USD89.59/BBL) is used as the input for
market fuel price to the Black-Scholes option valuation model. Consequently, the annualised volatility
(2010-11: 26.85%, 2009-10: 23.46%) 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 (2010-11: 0.38%,
2009-10: 0.41%) was also applied to each individual jet fuel option contract to derive their estimated
fair values as at the end of the reporting period.
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 profiles. 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.
The fair value of quoted investments is generally determined by reference to stock exchange quoted
market bid prices at the close of the business at the end of the reporting period. For investments where
there is no active market, fair value is determined using valuation techniques. Such techniques include
using recent arm’s length market transactions or reference to the current market value of another
instrument (which is substantially the same).