Telstra 2012 Annual Report Download - page 159

Telstra Corporation Limited and controlled entities
129
Notes to the Financial Statements (continued)
(g) Fair value hierarchy (continued)
Available for sale investments - unlisted securities
These shares are not listed on any stock exchange, therefore a
quoted market price is not available and accordingly have been
classified as Level 3. These shares were acquired for a purchase
price of $18 million which represents an amount exchanged
between knowledgeable and willing parties in an arms’ length
purchase transaction. During the fiscal year no gains or losses
have been recognised in other comprehensive income and
therefore the consideration paid approximates the investments fair
value.
Cross currency and interest rate swaps
The net fair values of our cross currency and interest rate swaps are
determined using valuation techniques which utilise data from
observable and unobservable market data. Assumptions are based
on market conditions existing at each reporting date. The fair value
is calculated as the present value of the estimated future cash flows
using an appropriate market based yield curve, which is
independently derived and representative of Telstra’s cost of
borrowing. In particular, the following inputs are used to derive yield
curves used in the calculation of fair value of our derivatives:
• base curves which are readily available market data and quoted
for all major currencies; and
• pricing data reflecting Telstra’s borrowing margins obtained from
selected market participants with whom Telstra has or would
transact in capital markets. We generally use the mid point of the
pricing data range in calculating the yield curve. This pricing
data used to estimate Telstra’s borrowing margins is not
observable, however sensitivity analysis on changes to this
input, by using the maximum point in the pricing range, does not
result in a significant change to the fair value of our cross
currency and interest rate swaps.
We have therefore classified these derivatives based on the
observable market inputs (Level 2).
Forward contracts
The fair value of our forward exchange contracts is calculated by
reference to forward exchange market rates at reporting date for
contracts with similar maturity profiles. These market rates are
observable and therefore these derivatives have been classified as
Level 2.
17. Capital management and financial instruments (continued)
Table K
Unlisted
securities
Level 3
$m
Opening balance 1 July 2011. . . . . . . . . . -
Purchases . . . . . . . . . . . . . . . . . . . . 18
Closing balance 30 June 2012 . . . . . . . . . 18