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## NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 

## Note 3. Financial Risk Management (continued) 

## (a) Market Risk 

## (i) Foreign Exchange Risk 

Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities are denominated in a currency that is not the Company’s functional currency. 

The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures to predominately United States dollar expenditures and cash and deposits held in United States dollars. The Group manages foreign exchange risk at the corporate level by monitoring forecast cash flows in currencies other than Australian dollars and ensuring that adequate United States dollar cash balances are maintained. 

United States dollars are bought on the spot market in excess of immediate requirements. Where currencies are purchased in advance of requirements, these balances do not usually exceed three months’ requirements. 

Regular sensitivity analysis is conducted to evaluate the potential impact of unfavourable exchange rates on the Group’s future financial position. The results of this evaluation are used to determine the most appropriate risk mitigation tool to be used. The Group will hedge when it is deemed the most appropriate risk mitigation tool to be used. 

Foreign currency hedging transactions were not entered into during the financial year or previous financial year. 

An analysis of the Group’s exposure to foreign exchange risk for financial instruments, expressed in Australian dollars, at the end of the financial year is set out below: 

<img src='content_image/153810.jpg'>

## Foreign Exchange Sensitivity Analysis 

The following table details the Group’s sensitivity to a 10.0% increase or decrease in the Australian dollar against the United States dollar, with all other variables held constant. The sensitivity analysis includes only outstanding foreign currency denominated amounts at the end of the financial year and adjusts their translation for a 10.0% change in the relevant foreign exchange rate. 

The sensitivity analysis is not fully representative of the inherent foreign exchange risk, as the financial year end exposure does not necessarily reflect the exposure during the course of a financial year. These sensitivities should not be used to forecast the future effect of movements in United States dollar exchange rates on future cash flows. 

