Yinson Annual Report 2018

Notes to the Financial Statements (Cont’d) For the financial year ended 31 January 2018 42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (continued) (i) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s loans and borrowings with floating interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and floating rate loans and borrowings. The Group enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and floating rate interest amounts calculated by reference to an agreed-upon notional principal amount. Interest rate sensitivity At the reporting date, if interest rates had been 10 basis points lower/higher, with all other variables held constant, the Group’s profit before tax would have been approximately RM2,877,000 (2017: RM3,101,000) higher/lower, arising mainly as a result of lower/higher interest expense on floating rate loans and borrowings. (ii) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities and the Group’s net investments in foreign subsidiaries. The Group has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily RM, USD, SGD and Norwegian Krone (“NOK”). The foreign currency in which these transactions are denominated is mainly USD and SGD. The Group holds cash and cash equivalents denominated in foreign currencies for working capital purposes. The other financial instruments denominated in foreign currencies include financial assets at fair value through profit or loss, trade and other receivables, trade and other payables and loans and borrowings. The Group is also exposed to currency translation risk arising from its net investment in foreign operations in Labuan, Singapore, Norway and Republic of the Marshall Islands. The Group’s investments in its foreign subsidiaries, joint ventures and associates are not hedged as the currency position in these investments are considered to be long-term in nature. Foreign currency sensitivity The following tables demonstrate the sensitivity to a reasonably possible change in USD and SGD exchange rates, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. The Group’s exposure to foreign currency changes for all other currencies is not material. Group 2018 2017 RM’000 RM’000 USD/RM - Strengthened 5% (2,391) (16,292) - Weakened 5% 2,391 16,292 SGD/RM - Strengthened 5% (3,809) (258) - Weakened 5% 3,809 258 178 Yinson Holdings Berhad Annual Report 2018 Accountability