Financial Statements - Mewah Group

Building Capabilities
Notes to the Financial Statements
For the financial year ended 31 December 2011
32. Financial risk management (continued)
(a)
Market risk (continued)
(ii)
Cash flows and fair value interest rate risks (continued)
The Group’s policy is to enter into variable interest rates borrowings. As most of the Group’s borrowings are shortterm
and trade related, accordingly, the Group has minimum cash flows interest rate exposure risk.
The Group’s borrowings were denominated mainly in Ringgit and USD. As at 31 December 2011, profit after tax for
the financial year would have been US$174,000 (2010: US$79,000) lower or higher if market interest rates had been
50 basis points higher or lower with all other variables held constant.
(iii)
Commodity price risk
The Group is exposed to fluctuations in the prices of agri-commodities it deals in, including crude palm oil and
palm oil products prices. The Group minimises the risk arising from such fluctuations by entering into commodities
forward contracts and futures contracts. The Group has not adopted hedge accounting.
In the course of entering into these contracts, the Group may be exposed to the inherent risk associated with
trading activities conducted by its personnel. The Group has in place a risk management system to manage such
risk exposure.
As at 31 December 2011, if the commodity prices increase or decrease by 5% and other variables held constant, the
Group’s profit after tax would have been US$6,457,000 (2010: US$6,305,000) lower or higher respectively, arising as a
result of the change in fair value of the commodities forward and futures contracts.
(b)
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the
Group. The major classes of financial assets of the Group are trade and other receivables and bank deposits. For trade and
other receivables, the Group adopts the policy of dealing only with customers of appropriate credit history, and obtaining
sufficient collateral or buying credit insurance where appropriate to mitigate credit risk. For other financial assets, the
Group adopts the policy of dealing only with high credit quality counterparties.
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