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## 6. Financial Instruments and Financial Risk Exposure (continued) 

## b. Financial Instrument Risk Exposure (continued) 

Based on the above net exposures as at June 30, 2010, and assuming that all other variables remain constant, a 5% depreciation or appreciation of the US dollar against the Canadian dollar would result in an increase/decrease of approximately $269,000 (2009 – $nil) in the Company’s net losses. 

During 2009, the Company entered into a number of foreign exchange forward contracts to reduce its exposure to foreign currency risk. The contracts obliged the Company to convert $5,500,000 to Malaysian ringgits at predetermined exchange rates on a monthly basis from February to July 2009. For the year ended June 30, 2010, a total of $500,000 (2009 – $5,000,000) was settled for Malaysian ringgit under the forward contracts resulting in a loss of $15,434 (2009 – $61,245) comprised of a total realized loss of $15,434 (2009 – total realized loss of $51,023 and an unrealized mark-to-market loss of $10,222). As at June 30, 2010, a total of $nil (2009 – $500,000) in forward contracts remain to purchase Malaysian ringgits. 

## Price risk 

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices other than those arising from interest rate risk or foreign currency risk. 

As at June 30, 2010 and 2009, the Company is not exposed to other price risk. 

## Interest rate risk 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is subject to interest rate risk with respect to its cash equivalents and financial liabilities. However, this risk is limited because of the short-term maturity of these instruments. The Company’s interest rate sensitivity analysis suggests they are not exposed to significant interest rate risk. 

## (ii) Credit risk 

Credit risk is the risk of a loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk. 

The Company’s credit risk is attributable to its liquid financial assets. The Company established an investment policy to avoid any investments other than government t-bills, term deposits guaranteed by major Canadian financial institutions, or term deposits at major Malaysian banks which are guaranteed by the Malaysian government. The Company’s accounts receivable includes $1,931,453 (2009 – $nil) due from a single government-owned refinery in Western Australia. Credit risk on this receivable is negligible and the balance was collected subsequent to year-end. 

The Company is exposed to concentration of credit risk with respect to cash and cash equivalents and restricted cash as $3,854,711 is held with a single Malaysian financial institution. The remaining $279,430 is held with various Canadian financial institutions. 

## (iii) Liquidity risk 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through budgeting and forecasting cash flows to ensure it has sufficient cash to meet its short-term requirements for operations, business development and other contractual obligations. The Company’s cash and cash equivalents are highly liquid and immediately available on demand for the Company’s use. 

Contractual obligated cash flow maturities of financial liabilities as at June 30, 2010 are as follows: 

<img src='content_image/199442.jpg'>

