inter roller fa final

Notes to the Financial Statements28 Financial risk management (Cont’d)28.2 Market riskMarket risk is the risk that the value of a financial instrument will fluctuate due to changes in market priceswhether those changes are caused by factors specific to the individual security or its issuer or factors affectingall securities traded in the market.The Company has entered into open forward contracts to manage its exposure to fluctuations in foreign currencyexchange rates as highlighted above.28.3 Interest rate riskThe Group’s and the Company’s exposure to changes in interest rate primarily to its investment portfolio in fixeddeposits and its debts obligations with financial institutions.The Group has cash balances placed with reputable banks which generate interest income for the Group. TheGroup manages its interest rate risk by placing such balances on varying maturities and interest rate terms.28.4 Credit riskCredit risk from the possibility that the customers may not be able to settle obligations to the group and theCompany within the normal terms of trade. It is the Group’s policy to enter into financial instruments with creditworthy counterparts and the exposure to credit risk is monitored on an on-going basis.Cash is held with financial institutions of good standing and adequate facilities are available for operations.The Group has made provision for potential losses on credit extended, as disclosed on the balance sheet. TheGroup does not expect to incur any further material credit losses on its risk management.28.5 Liquidity riskLiquidity or funding risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitmentsassociated with financial instruments. Liquidity risk may result from an inability to sell a financial assetquickly at close to its fair value.The Company ensures that there are adequate funds to meet all its obligations in a timely and cost-effectivemanner.29 Financial instrumentsFair valuesThe carrying amounts of the financial assets and financial liabilities as reflected in the balance sheet approximatetheir respective net fair values.The derivative instruments referred to above have no significant impact on the Group’s earnings.inter-roller engineering limited annual report2004 71