MISC Annual Report 2017

NOTES TO THE FINANCIAL STATEMENTS 287 Financial Statements 37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT'D.) (b) Foreign currency risk The currencies giving rise to this risk are primarily RM and USD. Approximately 2% (2016: 3%) and 8% (2016: 2%) of the Group and the Corporation's revenue are denominated in currency other than the currency of the primary economic environment which entities operate. Approximately 4% (2016: 10%) and 8% (2016: 4%) of the Group and the Corporation's cost of sales are denominated in currency other than the currency of the primary economic environment which the entities operate. 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 2016, the Group held forward currency contracts designated as hedges of expected future receipts and payments denominated in United States Dollar, Singapore Dollar, Euro and Great Britain Pound. 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 RM6,561,000, which represents the effective portion of the hedging relationship, is included in other comprehensive income in previous financial year. At 31 December 2017, the said forward currency contract has matured. 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. 2017 2016 Change in currency rate % Effect on profit before taxation (Decrease)/ Increase RM'000 Change in currency rate % Effect on profit before taxation (Decrease)/ Increase RM'000 Group USD/RM +5%                (129) +5%               (860) -5%                 129  -5%                 860  Corporation USD/RM +5% 11,723  +5%              3,511  -5%           (11,723) -5%            (3,511)