Singapore Airlines 2015 Annual Report Download - page 194

Notes to the Financial Statements
31 March 2015
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 uplis are in MOPS, the MOPS price (2015: USD 67.99/BBL, 2014: USD 120.20/BBL) is used as the input for
market fuel price to the Black-Scholes option valuation model. Consequently, the annualised volatility (FY2014/15: 34.84%,
FY2013/14: 10.29%) 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 (FY2014/15: 0.52%, FY2013/14: 0.29%) 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 Brent and crack swap contracts are also determined by reference to available market information and
are the marked-to-market values of these swap contracts. As the Group hedges in InterContinental Exchange (“ICE”)
Brent and Brent-MOPS crack, the ICE Brent futures contract price and its dierential relative to MOPS price are used as
the marked-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).
Financial instruments whose carrying amounts approximate fair value
The carrying amounts of the following financial assets and liabilities approximate their fair values due to their short-term
nature: cash and bank balances, funds from subsidiary companies, amounts owing to/by subsidiary companies, trade
debtors, other debtors, trade and other creditors.
Financial instruments carried at other than fair value
Long-term investments classified as available-for-sale amounting to $43.3 million (2014: $98.9 million) for the Group and
$18.5 million (2014: $18.8 million) for the Company are stated at cost because the fair values cannot be obtained directly
from quoted market price or indirectly using valuation techniques supported by observable market data.
Investments classified as held-to-maturity amounting to $782.1 million (2014: $452.2 million) for the Group and the
Company are stated at amortised cost. The fair value of these investments as at 31 March 2015 approximate $782.8 million
(2014: $452.2 million) for the Group and the Company. Fair value is determined by reference to their published market
bid price at the end of the reporting period. These investments are classified under Level 1 in the fair value hierarchy.
The Group and the Company have no intention to dispose of their interests in the above investments in the foreseeable future.
The fair values of long-term liabilities are disclosed in Note 19.
192 FINANCIAL