38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (b) Foreign currency risk The currencies giving rise to this risk are primarily RM and USD. Approximately 3% (2020: 6%) and 4% (2020: 5%) of the Group and the Corporation’s revenue are denominated in currency other than the currency of the primary economic environment which the entities operate. Approximately 3% (2020: 7%) and 15% (2020: 16%) of the Group and the Corporation’s cost of sales are denominated in currency other than the currency of the primary economic environment which the entities operate. The Group maintains a natural hedge, wherever possible, by borrowing in currencies that matches the future revenue streams to be generated from its investments. During the financial year, the Group held forward currency contracts designated as hedges of expected future receipts and payments denominated in USD, EUR and GBP for a subsidiary whose functional currency is Ringgit Malaysia. The forward currency contracts are being used to hedge the currency risk of the highly probable forecasted transactions. The cash flow hedges of the expected future receipts were assessed to be highly effective and a net unrealised gain of RM15,844,000 (2020: RM14,449,000) which represents the effective portion of the hedging relationship, is included in other comprehensive income. With all other variables held constant, the following table demonstrates the sensitivity of the Group’s and the Corporation’s profit before taxation to a reasonably possible change in the USD and RM exchange rates. 2021 2020 Effect on Effect on Effect on other Effect on other profit before comprehensive profit before comprehensive Change in taxation loss Change in taxation loss currency Increase/ Increase/ currency Increase/ Increase/ rate (Decrease) (Decrease) rate (Decrease) (Decrease) % RM'000 RM'000 % RM'000 RM'000 Group USD/RM +10% 5,385 537 +10% 3,000 48,695 -10% (5,385) (537) -10% (3,000) (48,695) Corporation USD/RM +10% 33,022 – +10% 36,639 – -10% (33,022) – -10% (36,639) – 38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (b) Foreign currency risk (cont'd.) The net unhedged financial receivables and payables and cash and bank balances of the Group and of the Corporation that are not denominated in their functional currencies are as follows: Net financial receivables/(payables) and cash and bank balances held in non-functional currencies United Great Ringgit States Britain Singapore Functional currency Malaysia Dollar Pound Euro Dollar Total of Group entities RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 At 31 December 2021 Ringgit Malaysia – 94,423 – 34 8,071 102,528 United States Dollar 44,934 – (15,519) 16,592 3,510 49,517 44,934 94,423 (15,519) 16,626 11,581 152,045 At 31 December 2020 Ringgit Malaysia – 76,599 – (401) 4,120 80,318 United States Dollar 49,148 – 2,908 20,784 4,643 77,483 49,148 76,599 2,908 20,383 8,763 157,801 Functional currency of Corporation At 31 December 2021 United States Dollar (365,701) – 714 17,877 83 (347,027) At 31 December 2020 United States Dollar (386,414) – 836 24,262 (1,307) (362,623) (c) Liquidity risk Liquidity risk is the risk that the Group and the Corporation will encounter difficulty in meeting their financial obligations due to shortage of funds. The Group's and the Corporation’s exposure to liquidity risk arise primarily from mismatches of the maturities of financial assets and liabilities. The Group's and the Corporation’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and various other sources of funding. The Group and the Corporation have at their disposal cash and short term deposits amounting to RM6,994,301,000 (2020: RM5,545,089,000) and RM2,831,994,000 (2020: RM1,620,947,000) respectively. As at 31 December 2021, the Group and the Corporation have unutilised credit lines of RM6.7 billion (2020: RM6.0 billion) and RM5.4 billion (2020: RM4.8 billion) respectively, which could be used for working capital purposes. NOTES TO THE FINANCIAL STATEMENTS 31 December 2021 NOTES TO THE FINANCIAL STATEMENTS 31 December 2021 MISC Berhad 420 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 421 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
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