EXCEL FORCE MSC BERHAD 109 Notes to the Financial Statements (cont’d) 34. FINANCIAL INSTRUMENTS (CONT’D) (b) Financial risk management objectives and policies (cont’d) (iii) Market risks (1) Interest rate risk The Group’s and the Company’s fixed rate deposits placed with licensed banks and borrowings are exposed to a risk of change in their fair value due to changes in interest rates. The Group’s and the Company’s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. The Group manages the interest rate risk of its deposits with licensed banks by placing them at the most competitive interest rates obtainable, which yield better returns than cash at bank and maintaining a prudent mix of short and long-term deposits. The Group manages its interest rate risk exposure from interest bearing borrowings by obtaining financing with the most favourable interest rates in the market. The Group constantly monitors its interest rate risk by reviewing its debts portfolio to ensure favourable rates are obtained. The Group does not utilise interest swap contracts or other derivative instruments for trading or speculative purposes. The interest rate profile of the Group’s and of the Company’s significant interest-bearing financial instruments, based on carrying amount at the end of the reporting period are as follows: 2021 2020 RM RM Group and Company Fixed rate instruments Financial asset Fixed deposits with licensed banks 216,331 207,568 Financial liability Lease liabilities 672,117 1,005,317 Floating rate instrument Financial asset Short-term funds 10,440,367 19,875,977 Interest rate risk sensitivity analysis Fair value sensitivity analysis for fixed rate instruments The Group and the Company do not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rates at the end of the reporting period would not affect profit or loss. Cash flow sensitivity analysis for floating rate instruments A change in 1% interest rate at the end of the reporting period would have increased/(decreased) the Group’s and the Company’s profit before tax by RM104,404 and RM104,404 (2020: RM198,760 and RM198,760) respectively, arising mainly as a result of higher/lower interest income on floating rate instruments. This analysis assumes that all other variables remain constant. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.
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