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4. Financial instruments
(continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of US dollars)
40
Dar Al-Maal Al-Islami Trust
Annual Report 2011
F. Liquidity risk
Liquidity risk is the risk that the
Group is unable to meet its payment
obligations associated with its
financial liabilities when they fall
due and to replace funds when they
are withdrawn. The consequence
may be the failure to meet
obligations to repay investors and
fulfil commitments to lend.
Liquidity risk management
process
The Group’s liquidity risk management
process, as carried out within the
Group and monitored by management
in individual entities within the Group,
includes:
i) Day-to-day funding,
managed by monitoring future
cash flows to ensure that
requirements can be met.
This includes replenishment of
funds as they mature or are
borrowed by customers.
The Group maintains an active
presence in money markets to
enable this to happen;
ii) Maintaining a portfolio
of highly marketable assets
that can easily be liquidated
as protection against any
unforeseen interruption to
cash flow;
iii) Monitoring statement of
financial position liquidity ratios
against internal and regulatory
requirements; and
iv) Managing the concentration
and profile of debt maturities.
Monitoring and reporting of treasury
and capital market maturities is
done through monitoring of daily
maturities. Similarly the overall
liquidity maintenance is done
through monthly maturity gap
analysis at balance sheet level.
Hence, monitoring and reporting
takes the form of regular and
periodic cash flow measurement
and projections. The starting point
for those projections is an analysis
of the contractual maturity of the
financial liabilities and the expected
collection date of the financial
assets.
The Group also monitors unmatched
medium-term assets.
Price risk
Price risk is the risk that the fair values of the equities or the managed funds
increase or decrease as a result of changes in the corresponding value of
equity indices or the value of individual equity stocks held as available-for-sale.
The table below summarises the impact of increase/decrease of equity indices
on the Group’s post tax profit for the year and on other components of equity.
The analysis is based on the assumptions that equity indices
increased/decreased by 10% with all other variables held constant and all the
Group’s equity instruments moved according to the historical correlation with the
indices.
Impact on other components of equity
2011
2010
Pakistan stock exchange (+/-10%)
7,769
8,154