Annual Report 2015
127
21 RISK MANAGEMENT
(continued)
21.4 Market risk
(continued)
21.4.1 Interest rate risk
(continued)
An interest rate sensitivity analysis was performed to determine the impact on net profit and equity of a reasonable
possible change in the interest rates prevailing as at September 30, with all other variables held constant. The impact
on net profit is the effect of changes in interest rates on the floating interest rates of financial assets and liabilities. The
impact on net unrealised gains is the effect of changes in interest rates on the fair value of available-for-sale financial
assets. This impact is illustrated on the following table:
Impact on net profit
2015
2014
Change in
basis points
Increase
Decrease
Increase
Decrease
TT$ Instruments
+/- 50
40,742
(40,742)
40,375
(40,375)
US$ Instruments
+/- 50
12,135
(12,135)
12,699
(12,699)
BDS$ Instruments
+/- 50
7,349
(7,349)
7,896
(7,896)
GHS Instruments
+/- 300
371
(371)
–
–
Other Currency Instruments
+/- 50
277
(277)
326
(326)
Impact on equity
2015
2014
Change in
basis points
Increase
Decrease
Increase
Decrease
TT$ Instruments
+/- 50
(42,211)
43,233
(45,251)
46,709
US$ Instruments
+/- 50
(43,270)
37,833
(54,543)
52,783
EC$ Instruments
+/- 25
(78)
78
(77)
78
BDS$ Instruments
+/- 50
(8,106)
8,419
(9,689)
10,096
Other Currency Instruments
+/- 50
(180)
239
(820)
514
21.4.2 Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
The Group’s exposure to the effects of fluctuations in foreign currency exchange rates arises mainly from its investments
and overseas subsidiaries and associates. The Group’s policy is to match the initial net foreign currency investment with
funding in the same currency. The Group also monitors its foreign currency position for both overnight and intra-day
transactions.
Changes in foreign exchange rates affect the Group’s earnings and equity through differences on the re-translation
of the net assets and related funding of overseas subsidiaries and associates, from the respective local currency to TT
dollars. Gains or losses on foreign currency investment in subsidiary and associated undertakings are recognised in
reserves. Gains or losses on related foreign currency funding are recognised in the consolidated statement of income.
