2020 UEM Edgenta Annual Report

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Foreign currency risk F oreign 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. T he Group has currency exposures arising from sales or purchases that are denominated in a currency other than the Ringgit Malaysia (“RM”). The foreign currencies in which these transactions are denominated are mainly Singapore Dollar (“SGD”) and Taiwan Dollar (“TWD”). A s a result of the significant investments in Singapore and Taiwan, the Group’s statement of financial position is affected by the movements in the respective functional currencies of the investees against the RM. The Group maintains a natural hedge, whenever possible, by borrowing in the currency of the country in which the investments are located or by borrowing in currencies that match the future revenue stream to be generated from its investments. A s and when the Group undertakes significant transactions denominated in foreign currencies, with continuing exposure over the applicable periods of settlement, the Group evaluates its exposure and the necessity to hedge such exposure, as well as the availability and cost of such hedging instruments. Sensitivity analysis for foreign currency risk T he following table demonstrates the sensitivity of the Group’s profit net of tax to a reasonably possible change in the SGD and TWD exchange rates against the RM, with all other variables held constant. Group 2020 RM’000 Profit net of tax 2019 RM’000 Profit net of tax SGD/RM - strengthened 1% (2019: 1%) - weakened 1% (2019: 1%) 709 (709) 292 (292) TWD/RM - strengthened 7% (2019: 3%) - weakened 7% (2019: 3%) 1,104 (1,104) 370 (370) UEM EDGENTA BERHAD 292 Financial Statements NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2020