MKH BERHAD | ANNUAL REPORT 2023 263 44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D) (iii) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to foreign currency risk when the currency denomination differs from its functional currency. The Group has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of the Group entities, primarily Ringgit Malaysia (“RM”), Indonesian Rupiah (“IDR”) and Chinese Renminbi (“RMB”). The foreign currency in which these transactions are denominated is mainly United States Dollar (“USD”). Foreign currency exposure in transactions and currencies other than functional currencies of the operating entities are kept to an acceptable level. The Group also holds cash and bank balances denominated in USD for working capital purposes. The Group is also exposed to currency translation risk arising from its net investments in foreign operations. The Group’s net investment in The Peoples’ Republic of China and Republic of Indonesia are not hedged as currency positions in RMB and IDR are considered to be longterm in nature. Financial assets and liabilities denominated in USD are as follows: The Group 2023 2022 RM RM USD Bank balances 2,748,340 4,969,840 Trade receivables 282,672 267,593 Loans and borrowings (2,359,952) (2,317,544) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2023
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