Mohsin Annual Report-Final 1-91:Layout 1.qxd - Siemens Pakistan

Notes to the Financial Statements 12539. CREDIT RISK AND CONCENTRATIONS OF CREDIT RISKCredit risk represents the accounting loss that would be recognised at the reporting date if counter parties fail completely to perform as contracted.To mitigate the credit risk, the Company has a system of assigning credit limits to its customers. The Company endeavors to cover the credit riskson government sector trade receivables by restricting credit facility to the projects which are financed by multilateral financial institutions and / orfinanced by special allocation of funds by the provincial / federal governments. Business with government sector customers is also secured by wayof inland letters of credit where possible. Credit risk on private sector is covered to the maximum extent possible through letters of credit or legallybinding contracts with availability of adequate finance for the project from the sponsors and lenders.The sector wise analysis of receivables including trade receivables, advances to suppliers and trade deposits is given below:2007 2006(Rupees in ‘000) % (Rupees in ‘000) %Government sectorEnergy 5,687,562 68 2,735,364 42Communication 293,869 3 607,712 9Health 37,301 - 31,741 -Aviation 6,476 - 8,617 -Others 537,131 6 690,636 11Sub-total 6,562,339 77 4,074,070 62Private sectorConstruction companies - . - 841,147 13Energy 415,985 5 540,818 8Communication 22,685 - 292,475 5Cement Industry 16,855 - 62,111 1Dealers and agents 49,266 1 42,621 1Aviation 51,326 1 32,327 -Others 1,323,779 16 660,520 10Sub-total 1,879,896 23 2,472,019 38Total 8,442,235 100 6,546,089 10040. FOREIGN EXCHANGE RISK MANAGEMENTForeign currency risk arises mainly where receivables and payables exist due to transactions with foreign undertakings, especially groupcompanies. In respect of anticipated future transactions, the following forward exchange contracts have been taken at the balance sheet date tohedge the foreign currency liabilities to group companies and others.2007 2006(Rupees in ‘000)Forward exchange contracts- Purchased value 5,103,222 2,093,321- Fair value 5,208,535 2,079,682