2018 UEM Edgenta Annual Report

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (c) 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 has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of Group entities. The foreign currencies in which these transactions are denominated are mainly Singapore Dollar and Taiwan Dollar. As a result of the significant investments in Singapore and Taiwan, the Group’s statement of financial position is affected by the movements in the respective functional currencies of the investees against the Ringgit Malaysia. The Group maintains a natural hedge, whenever possible, by borrowing in the currency of the country in which the investments are located or by borrowing in currencies that match the future revenue stream to be generated from its investments. As and when the Group undertakes significant transactions denominated in foreign currencies, with continuing exposure over the applicable periods of settlement, the Group evaluates its exposure and the necessity to hedge such exposure, as well as the availability and cost of such hedging instruments. The Group also holds cash and cash equivalents and bank overdrafts denominated in foreign currencies for working capital purposes. At the reporting date, such foreign currency balances are as follows: Functional currency of Group Companies 2018 2017 RM’000 RM’000 United Arab Emirates Dirham (AED) 100 98 Indonesian Rupiah (IDR) 5,801 7,940 Singapore Dollar (SGD) 1,364 1,463 7,265 9,501 Sensitivity analysis for foreign currency risk The following table demonstrates the sensitivity of the Group’s profit after tax to a reasonably possible change in the following exchange rates against the respective functional currencies of the Group entities, with all other variables held constant. Group 2018 2017 RM’000 RM’000 AED/RM - strengthened 2% (2017: 10%) 2 10 IDR/RM - strengthened 4% (2017: 10%) 232 794 SGD/RM - strengthened 1% (2017: 2%) 14 29 Financial Review Stakeholder Information AGM Information 241 Governance Review of Sustainability Activities