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Notes to the Consolidated Financial Statements
(Thousands of US dollars)
49
Dar Al-Maal Al-Islami Trust
Annual Report 2014
11. Fair value of financial
instruments
(continued)
(a) Financial instruments in Level 1
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. A market is regarded as active
if quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm’s length
basis. The quoted market price used for financial assets held by the Group is
the current bid price. These instruments are included in Level 1. Instruments
included in Level 1 comprise primarily Pakistan Stock Exchange equity
investments classified as trading securities or available for sale.
(b) Financial instruments in Level 2
The fair value of financial instruments that are not traded in an active market
(for example, over-the-counter derivatives) is determined by using valuation
techniques. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific
estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in Level 2.
If one or more of the significant inputs is not based on observable market data,
the instrument is included in Level 3.
Specific valuation techniques used to value financial instruments include:
•
Quoted market prices or dealer quotes for similar instruments;
•
The fair value of hedging derivatives is calculated as the present value of the
estimated future cash flows based on observable yield curves;
•
The fair value of forward foreign exchange contracts is determined using
forward exchange rates at the balance sheet date, with the resulting value
discounted back to present value;
•
Other techniques, such as discounted cash flow analysis, are used to
determine fair value for the remaining financial instruments.
Sensitivity of Level 3 measurements to reasonably possible alternative assumptions
An assumed ± 10% movement in the fair value of Level 3 measurement has the following impact:
Impact in equity
At 31 December 2014
Favourable changes Unfavourable changes
Trading securities
-
-
Investment securities - available-for-sale
21,138
(21,138)
At 31 December 2013
Trading securities
-
-
Investment securities - available-for-sale
8,038
(8,038)