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## 30 June 2014 

## Notes to the Financial Statements 

## Franking credits 

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The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: 

• franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date 

• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date 

• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date 

## NOTE 34. FINANCIAL INSTRUMENTS 

## Financial risk management objectives 

The Consolidated Entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Consolidated Entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Consolidated Entity. The Consolidated Entity uses derivative financial instruments such as forward foreign exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Consolidated Entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. 

Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the Board’). These policies include identification and analysis of the risk exposure of the Consolidated Entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Consolidated Entity’s operating units. Finance reports to the Board on a monthly basis. 

## Market risk 

## Foreign currency risk 

The Consolidated Entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. 

Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. 

The Consolidated Entity enters into forward exchange contracts to buy and sell specified amounts of foreign currencies in the future at stipulated exchange rates. The objective in entering the forward exchange contracts is to protect the Consolidated Entity against unfavourable exchange rate movements for both the contracted and anticipated future sales undertaken in foreign currencies. As at 30 June 2014, there were no open forward exchange contracts. 

The maturity, settlement amounts and the average contractual exchange rates of the Consolidated Entity’s outstanding forward foreign exchange contracts at the reporting date was as follows: 

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