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Events 2005 - ChartNexus

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124<br />

Notes to the Financial Statements 31 December <strong>2005</strong><br />

5. SIGNIFICANT ACCOUNTING POLICIES (Continued)<br />

5.14 Financial instruments (Continued)<br />

5.14.1 Financial instruments recognised on the balance sheets (Continued)<br />

(c) Medium Term Notes<br />

The Medium Term Notes are recognised in the financial statements based on nominal value of the notes.<br />

(d) Other financial instruments<br />

The accounting policies for other financial instruments recognised on the balance sheet are disclosed in the individual<br />

policy associated with each item.<br />

5.14.2 Financial instruments not recognised on the balance sheets<br />

Foreign currency forward contracts<br />

Foreign currency forward contracts are used to hedge foreign currency exposures as a result of receipts and payments in<br />

foreign currency. Any gains or losses arising from contracts entered into as hedges of anticipated future transactions are<br />

deferred until the dates of such transactions at which time they are included in the measurement of such transactions.<br />

All other gains or losses relating to hedged instruments are recognised in the income statement in the same period as the<br />

exchange differences on the underlying hedged items.<br />

Interest rate swaps contracts<br />

Interest rate swaps are used to hedge the Group’s exposures to movement in interest rates. The differential in interest rates<br />

to be paid is recognised in the income statements over the life of the contract as part of interest expense.<br />

5.14.3 Fair value estimation for disclosure purposes<br />

The fair value of publicly traded derivatives and securities is based on market prices at the balance sheet date.<br />

The fair value of foreign exchange contracts is determined using foreign exchange market rates at the balance sheet date.<br />

The fair value of interest rate swaps contracts are the estimated amount that the Group expect to pay or receive on the<br />

termination of the outstanding position arising from such contract.<br />

In assessing the fair value of non-traded derivatives and financial instruments, the Group uses a variety of methods and<br />

makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or<br />

dealer quotes for the specific or similar instruments are used for long term debt. Other techniques, such as option pricing<br />

models and estimated discounted value of future cash flows, are used to determine fair value for the remaining financial<br />

instruments. In particular, the fair value of financial liabilities is estimated by discounting the future contractual cash flows<br />

at the current market interest rate available to the Group for similar financial instruments.<br />

The fair values for financial assets and liabilities with a maturity of less than one year are assumed to approximate their<br />

face values.

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