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Notes to the Consolidated Financial Statements
(Thousands of US dollars)
36
Dar Al-Maal Al-Islami Trust
Annual Report 2014
4. Financial instruments
(continued)
Trading portfolios include those
positions arising from market-
making transactions where the
Group acts as principal with clients
or with the market. Non-trading
portfolios primarily arise from the
management of the entity’s retail
and commercial banking assets
and liabilities. Non-trading portfolios
also consist of foreign exchange and
equity risks arising from the Group’s
available-for-sale investments and
held-to-maturity investments.
(a) Foreign exchange risk
The Group takes on exposure to the
effects of fluctuations in the prevailing
foreign currency exchange rates on
its financial position and cash flows.
The boards of directors of individual
entities within the Group set limits
on the level of exposure by currency
and in aggregate for both overnight
and intra-day positions, which are
monitored daily.
(b) Profit rate risk
Profit rate risk is the risk that the
value of the financial instrument
will fluctuate due to changes in the
market profit rates. Movement in the
market profit rates may affect the
earnings of the Group.
The profit rate exposure taken by
the Group arises from investing
in corporate, small-medium
enterprises, consumer financing,
investment banking and inter-
banking activities where variation
in market profit rates may affect the
profitability of the Group. The risk
is managed by the management
of individual entities. The profit rate
dynamics are reviewed at regular
intervals and repricing of assets and
liabilities are adjusted to ensure that
the spread of the subsidiary remains
at an acceptable level.
The financings and deposits of the
Group are broadly linked to the
market variable rates and thus get
automatically repriced on a periodic
basis based on profit rate scenarios.
Currency risk
Assuming that all other variables held constant, the impact of currency risk
on the consolidated statement of income/equity based on reasonable shift is
summarised below:
At 31 December 2014
USD/EUR
USD/BHD USD/AED
USD/GBP USD/EGP
Total currency exposure
(173,757) (927,864) (276,079) (68,103)
54
Reasonable shift
0.55% 0.13% 0.04% 0.16% 10.31%
Total effect on income
(956)
(1,206)
(101)
(112)
6
At 31 December 2013
Total currency exposure
(184,925) (1,080,779) (283,188) (79,828)
(349)
Reasonable shift
0.06% 0.15% 0.04% 0.34% 6.11%
Total effect on income
(120)
(1,648)
(100)
(272)
(21)
The basis for calculation of the reasonable shift is arrived at by comparing
the foreign exchange spot rate at 31 December as compared to the one year
forward rate for the same period. The total effect on equity was determined not
to be material.