319 SECTION 6 FINANCIAL STATEMENTS INTEGRATED ANNUAL REPORT 2025 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2025 42 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk Market risk refers to the risk that changes in market prices, such as foreign exchange rates, interest rates and prices will affect the Group’s and the Company’s financial position and cash flows. (a) Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has transactional currency exposures arising from sales and purchases that are denominated in a currency other than the functional currencies of the Group entities. The foreign currency in relation to these transactions is mainly denominated in United States Dollar. The Group maintains a natural hedge, whenever possible, by maintaining receivables and payables in matching foreign currencies. Foreign exchange exposures in transactional currencies other than the functional currencies of the operating entities are kept to an acceptable level. The Group also uses forward currency contracts to minimise exposure on currency fluctuations for which receipts or payments are anticipated more than one month after the Group has entered into a firm commitment for a sale or purchase. The forward currency contracts entered are in the same currency as the hedged item. It is the Group’s policy to negotiate the terms of the forward currency contracts to match the terms of the hedged item to maximise its effectiveness. At the reporting date, the Group is mainly exposed to fluctuation in the United States Dollar exchange rate against the respective functional currencies of the Group entities. The Group considers a 5% strengthening or weakening of the United States Dollar as a possible change. A 5% strengthening or weakening of the United States Dollar would result in profit or loss after tax and equity being approximately RM6,085,000 and RM16,000 (2024: RM4,785,000 and RM10,000) higher or lower for the Group and the Company accordingly. The Group and the Company consider that the foreign currency risk attributable to currencies other than the United States Dollar to be insignificant.
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