Letter To Shareholders - Mitac

(d) Derivative financial instruments: The forward for trading was entered for hedging
the foreign exchange risk. It results cash in and cash out, respectively, at maturity.
Because the Group will receive and pay the cash on settlement dates and the
future working capital is sufficient, therefore, the liquidity risk and cash flow risk
is low.
(e) Long-term liabilities of financial instruments: The Group has sufficient working
capital to meet various funding needs and major capital expenditures. Thus, the
Group expects to have no significant liquidity risk.
D. Cash flow risk
(a) The Group issues parts of secured bonds payable with fixed interest rate and parts
of secured bonds payable with floating interest rate. The Group undertakes
interest rate swaps to hedge cash flow risk arising from fluctuations in interest
rates.
The Group issues unsecured bonds payable with zero interest and there is no cash
flow risk arising from fluctuations in interest rates.
(b) Derivative financial instruments: These financial instruments are non-interest
bearing financial instruments. Thus, there is no cash flow risk.
(c) Short-term financial instruments: Maturities of these financial instruments are
within one year, there is no material cash flow risk.
(d) Long-term liabilities of financial instruments: The Group borrows loans, with
floating interest rate. The effective interest rate of loans would be changed due to
changes in market interest rates, which would cause the fluctuations in future
cash flows. The Group also has established a risk management program and
carries out procedures to monitor cash flow risk arising from fluctuations in
interest rates. Thus, the Group expects to have no significant cash flow risk.
6) The Group’s interest rate risk arises from floating rate bonds payables. Bonds payables
issued at variable rates expose the Group to cash flow interest rate risk, therefore the
Group undertakes interest rate swaps to hedge cash flow risk.
Hedge item
Interest expense of
bonds payable with
floating interest
rate
Designated for hedging
Financial
instrument was
designated for
December 31,
hedging
instrument 2009 2008
Interest rate
SWAP
Period of
anticipated cash
flow
$ - $ 1,045 2004.05.25~
2009.05.25
Period of gain
(loss) recognized
in income
statements
N/A
For the year ended
December 31, 2009
For the year ended
December 31, 2008
Items
Amount of gain or loss recognized directly
in equity ($ 1,045 ) $ 12,028
Amount removed from equity and
recognized in profit or loss -
Amount removed from equity and adjusted
in non-financial assets / liabilities -
~140~