DMIT Annual Report 2017

N OTES TO THE C ONSOLIDATED F INANCIAL S TATEMENTS (Thousands of US dollars) Dar Al-Maal Al-Islami Trust 53 11. Fair value of financial instruments (continued) (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;  Pakistan Investment Bonds / Market Treasury Bills: Fair values of Pakistan Investment Bonds and Treasury Bills are derived using the secondary market rates provided by the Mutul Fund Association of Pakistan.  Sukuk: Fair values of Sukuk are derived using the market rates announced by the Financial Market Association (FMA) through Reuters. These rates denote an average of quotes received from different approved dealers / brokers.  Term Finance Certificates: Fair values of TFCs and Sukuk certificates are derived using the secondary market rates provided by the Mutul Fund Association of Pakistan.  Forward foreign exchange contracts: The valuation has been determined by interpolating the mid rates announced by the State Bank of Pakistan.  Convertible bond: valuation is based on market yield for comparable bonds discounted to arrive at the fair value. Sensitivity of Level 3 measurements to changes in assumptions An assumed ± 10% movement in the fair value of Level 3 measurement has the following impact: Impact in equity At 31 December 2017 Favourable changes Unfavourable changes Investment securities - available-for-sale 23,720 (23,720) At 31 December 2016 Trading securities - - Investment securities - available-for-sale 14,625 (14,625)