Eng - IOI Group

notestothefinancialstatements cont’d39 FINANCIAL INSTRUMENTSFinancial risk management objectives and policiesThe Group’s activities expose it to a variety of financial risks, including foreign exchange risk, interest rate risk,market risk, credit risk, liquidity and cashflow risk. The Group’s overall financial risk management objective is toensure that the Group creates value for its shareholders whilst minimising potential adverse effects on its financialperformance and positions. The Group operates within established risk management framework and clearly definedguidelines that are approved by the Board.Foreign currency riskThe Group operates internationally and is exposed to various currencies, mainly US Dollar, Euro, Canadian Dollar,Japanese Yen and Singapore Dollar. Foreign currency denominated assets and liabilities together with expectedcash flows from committed purchases and sales give rise to foreign exchange exposures.The Group maintains a natural hedge, whenever possible, by borrowing in the currency of the country in which theproperty or investment is located or by borrowing in currencies that match the future revenue stream to begenerated from its investments.Foreign exchange exposures in transactional currencies other than functional currencies of the operating entitiesare kept to an acceptable level. Material foreign currency transaction exposures are hedged with derivativefinancial instruments such as forward foreign exchange contracts and options.As at balance sheet date, the Group has entered into forward foreign exchange contracts with the followingnotional amounts and maturities:Group2003In RM’000MaturitiesTotalWithin 1 - 5 5 Years Notional1 Year Years or More AmountSales contracts 687,470 4,520 - 691,990Purchase contracts 83,273 - - 83,273IOI Corporation BerhadAnnual Report 2003202The net unrecognised gain/(loss) as at 30 June 2003 on forward contracts used to hedge committed sales andpurchases which are substantially expected to occur during financial year 2004 amounted to RM4,154,000 and(RM2,508,000) respectively. These net gain/(loss) are deferred until the related future transactions occur, at whichtime they will be included in the measurement of the transactions.