Page 174 - Annual Report 2014
P. 174
27 Financial Risk Management (continued) Overview
Estimation of fair values
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments
of the Group and Company.
Derivatives Strategy
Marked to market valuations of the forward exchange contracts are provided by the banks. For interest rate swaps, valuations
are also provided by the banks. Those quotes are tested using pricing models or discounted cash flow techniques.
Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and Performance
the discount rate is a market related rate for a similar instrument at the reporting date. Where other pricing models are used,
inputs are based on market related data at the reporting date.
Borrowings
The fair values of borrowings which reprice within one year of reporting date were assumed to equate the carrying value. All
other borrowings are calculated using discounted cash flow models based on the present value of future principal and interest
cash flows, discounted at the market rate at the reporting date.
Other financial assets and liabilities Governance
The carrying amounts of financial assets and liabilities with maturity of less than one year (including trade and other
receivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fair values.
Interest rates used in determining fair values
The Group and the Company use the interbank swap yield as of 31 December 2014 plus an adequate constant credit spread to Financials
discount financial instruments. The interest rates used are as follows:
2014 2013
% per annum % per annum
Derivatives 0.86 – 2.25 0.86 – 2.25
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined
as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices);
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table represents the assets and liabilities measured at fair value, using Level 2 valuation method, at
reporting date:
Group and Company
2014 2013
$m $m
Financial assets – 0.9
Mark-to-market financial instruments
– Forward exchange contracts
Financial liabilities 1.7 5.1
Mark-to-market financial instruments
– Interest rate swaps
StarHub Ltd | Annual Report 2014 171
