Annual Report 2019

156 CHINA MERCHANTS PORT HOLDINGS COMPANY LIMITED Notes to the Consolidated Financial Statements For the year ended 31 December 2019 3. FINANCIAL RISK MANAGEMENT (CONTINUED) 3.1 Financial risk factors (continued) (i) Market risk (continued) (a) Foreign exchange risk (continued) At 31 December 2019, if Renminbi had strengthened/weakened against the other currencies by 3% (2018: 3%) with all other variables held constant, profit for the year would have been approximately HK$100 million lower/higher (2018: HK$48 million higher/lower) mainly as a result of decrease/increase (2018: increase/decrease) in net foreign exchange gains on translation of cash and cash equivalents, debtors, creditors and bank and other borrowings denominated in non-functional currencies of the relevant group companies. At 31 December 2019, if United States dollar had strengthened/weakened against the other currencies by 0.5% (2018: 0.1%) with all other variables held constant, profit for the year would have been approximately HK$98 million lower/higher (2018: HK$21 million higher/lower) mainly as a result of decrease/increase (2018: increase/decrease) in net foreign exchange gains on translation of cash and cash equivalents, debtors, creditors and bank and other borrowings denominated in non-functional currencies of the relevant group companies. (b) Price risk The Group is exposed to equity securities price risk because of investments held by the Group that are classified on the consolidated statement of financial position as financial assets at FVTPL and equity instruments at FVTOCI. At 31 December 2019, if there had been a 10% (2018: 10%) increase/decrease in the prices of the respective equity instruments with all other variables held constant, (i) profit for the year ended 31 December 2019 would increase/decrease by HK$265 million (2018: HK$238 million) as a result of the changes in fair value of the financial assets at FVTPL and (ii) other comprehensive income, net of deferred tax, for the year ended 31 December 2019 would increase/decrease by HK$1 million (2018: HK$11 million) as a result of the changes in fair value of the equity instruments at FVTOCI. The Group is not exposed to commodity price risks and has not entered into any derivatives to manage exposures of price risk. (c) Fair value interest rate risk and cash flow interest rate risk The Group’s interest rate risk mainly arises from interest-bearing borrowings. Financial assets and financial liabilities issued at variable rates expose the Group to cash flow interest rate risk whilst borrowings issued and lease liabilities at fixed rates expose the Group to fair value interest rate risk. The Group adopts a policy of maintaining an appropriate mix of fixed and floating rate borrowings which is achieved primarily through the contractual terms of borrowings. The position is regularly monitored and evaluated by reference of anticipated changes in market interest rate. The Group did not use any interest rate swap to hedge its interest rate risk during the year. Other than advances to an associate and a joint venture and bank deposits as at 31 December 2019, the Group has no significant interest-bearing assets. The Group’s income and operating cash flows are substantially independent of changes in market interest rates. Accordingly, management does not anticipate any significant impact resulting from changes in interest rates on interest-bearing assets.