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## Cardno Limited and its Controlled Entities for the year ended 30 June 2010 

## 33. FINANCIAL RISK MANAGEMENT CONTINUED 

Liquidity risk continued 

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## Market risk 

## (a) Foreign exchange risk 

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the functional currency of the respective Group entities. The Group operates internationally and is exposed to foreign exchange risk arising from the currency exposure to the Australian dollar. 

The Group borrows funds in foreign currencies to hedge its net investments in foreign operations. The Group has loans totalling $148.3 million (2009: $54.7 million) denominated in US dollars (USD) and $14.0 million (2009: $17.5 million) denominated in sterling (GBP) which have been designated as hedges of the Group’s net investments in subsidiaries with functional currencies in those currencies. 

As at 30 June 2010, a 10% strengthening of the Australian dollar against the USD and GBP would have increased equity by $13.5 million (2009 $5.0 million) and $1.3 million (2009: $1.6 million) respectively. A 10% weakening of the Australian dollar against the USD and GBP would have decreased equity by $16.5 million (2009 $6.1 million) and $1.6 million (2009: $1.9 million) respectively. There would be no impact on profit and loss as the loans are designated as net investment hedges. 

Other than interest bearing liabilities, there are no other significant foreign currency exposures in relation to financial instruments at year end. 

## (b) Interest rate risk 

The Group manages its exposure to interest rate fluctuation by continuously monitoring its debt to ensure any significant movement would not have a material impact on the performance of the Group. The Group does not engage in any significant transactions which are of a speculative nature. 

At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was: 

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