DMIT Annual Report 2017

N OTES TO THE C ONSOLIDATED F INANCIAL S TATEMENTS (Thousands of US dollars) Dar Al-Maal Al-Islami Trust 40 4. Financial instruments (continued) E. Market risk The Group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in currency, equity, profit rate and other products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit rates, credit spreads, foreign exchange rates and equity prices. The Group separates exposures to market risk into either trading or non-trading portfolios. The market risks, arising from trading and non- trading activities, are monitored by individual entities within the Group. Regular reports are submitted to management. 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. Currency risk Assuming that all other variables held constant, the impact of currency risk on the consolidated statement of income and comprehensive income based on reasonable shift is summarised below: USD/EUR USD/BHD USD/PKR At 31 December 2017 Total currency exposure (247,157) (218,491) (997,243) Reasonable shift 2.42% 0.52% 12.78% Total effect on income (5,981) (1,136) (127,448) At 31 December 2016 Total currency exposure (287,704) (55,363) (1,344,624) Reasonable shift 0.34% 1.34% 12.78% Total effect on income (971) (744) (171,843) 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.