Vtech 2001 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2001 Vtech annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 72

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72

23. FINANCIAL INSTRUMENTS
Off-balance sheet derivative financial instruments
The Group enters into foreign exchange forward contracts in order to manage its exposure to fluctuations in
foreign currency exchange rates on specific transactions. The contracts are matched with anticipated future
cash flows in foreign currencies, primarily from sales. The Group does not use derivative financial instruments
for speculative purposes.
The following table summarizes by major currency the net amounts to be received/(paid) under forward
contracts.
2001 2000
Contract
Amount
Fair value
Contract
Amount
Fair value
Asset Liability Asset Liability
US$ million US$ million US$ million US$ million US$ million US$ million
United Kingdom
Sterling Pounds 19.6 0.3 Ð 8.2 0.2 Ð
Euros (21.2) 0.5 (0.5) Ð Ð Ð
The fair value of the foreign exchange forward contracts represents the unrealized gains or losses on open
contracts not recognized in the financial statements. These open contracts mature at various dates over the
next 12 months.
Credit risk
Financial assets which potentially subject the Group to credit risk consist principally of cash, short-term
deposits and trade receivables. The Group's cash equivalents and short-term deposits are placed with major
financial institutions. Trade receivables are presented net of the allowance for doubtful receivables. Credit risk
with respect to trade receivables is limited due to the large number of customers comprising the Group's
customer base and their dispersion across different industries and geographical areas. Accordingly, the
Group has no significant concentration of credit risk. In addition, credit risks are mitigated by the use of
insurance plans.
With respect to the foreign exchange forward contracts, the Group's exposure is on the full amount of the
foreign currency receivable on settlement. The Group manages these risks by monitoring credit ratings and
limiting the aggregate risk to any individual counterparty.
Interest rate risk
The Group's short-term deposits are at fixed interest rates and mature within three months. All of the Group's
borrowings bear interest based on floating interest rates except for term loans amounting to US$7.0 million
(2000: US$3.6 million) which have fixed rates of interest.
59
Notes to the Financial Statements
VTech Holdings Ltd Annual Report 2001