268 REDISCOVER | REBUILD | SUSTAIN Notes to the financial statements - 31 December 2015 35. Financial risk management objectives and policies (cont’d.) (b) Foreign currency risk The Group is exposed to transactional currency risk primarily through sales and purchases that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to this risk are primarily RM and USD. Approximately 4% (2014: 9%) of the Group’s sales are denominated in currencies other than the Group’s functional currency by the operating unit making the sale, whilst almost 94% (2014: 95%) of costs are denominated in the Group’s functional currency. The Group maintains a natural hedge, wherever possible, by borrowing in currencies that matches the future revenue streams to be generated from its investments, except for the following: At 31 December 2015, the Group held forward currency contracts designated as hedges of expected future receipts and payments denominated in USD, Singapore Dollars, Euro and Sterling Pounds. The forward currency contracts are being used to hedge the foreign currency risk of the highly probable forecasted transactions. The cash flow hedges of the expected future receipts which are expected to occur within the next 12 months, were assessed to be highly effective and a net unrealised gain of RM356,000 (2014: RM501,000), which represents the effective portion of the hedging relationship, is included in other comprehensive income. With all other variables held constant, the following table demonstrates the sensitivity of the Group and the Corporation’s profit before taxation to a reasonably possible change in the USD and RM exchange rates. 2015 2014 Effect on Effect on profit before profit before Change in taxation Change in taxation currency Increase/ currency (Decrease)/ rate (Decrease) rate Increase % RM’000 % RM’000 Group USD/RM +5% 7,480 +5% (90,761) -5% (7,480) -5% 90,761 Corporation USD/RM +5% 8,317 +5% (101,375) -5% (8,317) -5% 101,375
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