Vtech 2011 Annual Report Download - page 58

56 VTech Holdings Ltd Annual Report 2011
Notes to the Financial Statements
19 Financial Risk Management and Fair
Values (Continued)
(b) Foreign exchange risk (Continued)
(ii) Sensitivity analysis
A sensitivity analysis was performed at 31 March 2011 to measure
the instantaneous change in the Group’s profit after tax and
total equity that would arise if foreign exchange rates to which
the Group has significant exposure at the balance sheet date
had changed at that date, assuming all other risk variables
remained constant. In this respect, it is assumed that the pegged
rate between HKD and USD would be materially unaffected by
any changes in movement in value of the USD against other
currencies.
– A 5% (2010: 5%) increase/decrease in the exchange rate of
EUR against USD will increase/decrease the Group’s profit
after tax and total equity by approximately US$0.4 million
(2010: US$nil).
– The impact on the Group’s profit after tax and total equity is
not expected to be material in response to possible changes
in the foreign exchange rates of other currencies to which
the Group is exposed.
The sensitivity analysis performed represents an aggregation of
the instantaneous effects on each of the Group entities’ profit
after tax and total equity measured in the respective functional
currencies, translated into USD at the exchange rate ruling at the
balance sheet date for presentation purposes.
The sensitivity analysis assumes that the change in foreign
exchange rates had been applied to re-measure those recognised
assets or liabilities held by the Group which expose the Group to
foreign currency risk at the balance sheet date, including
inter-company payables and receivables within the Group
which are denominated in a currency other than the functional
currencies of the lender or the borrower. The analysis excludes
differences that would result from the translation of the financial
statements of foreign operations into the Group’s presentation
currency. The analysis is performed on the same basis for 2010.
(c) Interest rate risk
At 31 March 2010 and 31 March 2011, the Group had no bank
borrowings.
The Group is exposed to interest rate risk through the impact
of interest rates changes on income-earning financial assets,
the following table indicates their effective interest rates at the
balance sheet date and the periods in which they reprice or the
maturity dates, if earlier.
Deposits and Cash
2011 2010
Effective
interest rate
Within one
year
US$ million
Effective
interest rate
Within one
year
US$ million
Floating 0.21% 108.7 0.18% 113.0
Fixed 0.76% 224.4 0.67% 269.6
Interest rate sensitivity
At the respective balance sheet dates, if interest rates had been
increased by 25 basis points and all other variables were held
constant, the Group’s profit after tax and total equity would
increase by approximately US$0.8 million and US$1.0 million
for the years ended 31 March 2011 and 2010, respectively. This
is mainly attributable to the Group’s exposure to interest rate
changes on its variable rate income-earning financial assets
including floating and fixed deposits and cash.
(d) Liquidity risk
Cash management of the Company and wholly-owned
subsidiaries of the Group are substantially centralised at the
Group level. The Group’s policy is to regularly monitor current
and expected liquidity requirements to ensure that it maintains
sufficient reserves of cash and adequate committed lines of
funding from major financial institutions to meet its liquidity
requirements in the short and longer term.