Exchange rate risk related to some net investments in

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Unformatted text preview: ally to rebalance the portfolio to be in line with the duration requirements in Telenor’s Group Policy Treasury. These derivatives do not qualify for hedge accounting. Fair values of financial instruments designated as hedging instruments in fair value hedges: NOK in millions Fair value as of 31 december Fair value hedge instruments 2011 2010 Assets liabilities Assets liabilities 511 - 910 - Interest rate risk sensitivity analysis Effects on changes in fair value The Group calculates the sensitivity on the change in fair value of assets and liabilities of a defined parallel shift in the yield curve of the relevant currencies. For each simulation, the same shifts in interest rates are used for all currencies. The sensitivity analysis is run only for assets and liabilities that represent major interest-bearing positions. Based on simulations performed, a 10 percent decrease of the yield curve as of 31 December 2011 would represent an increase in fair value of financial instruments of NOK 68 million (NOK 139 million as of 31 December 2010). Similarly, a 10 percent increase of the yield curve would result in a decrease in fair value of financial instruments of NOK 66 million (NOK 137 million as of 31 December 2010), respectively. These /page 67/ telenor annual report 2011 notes to the financial statements / telenor group simulations disregard the effects of hedging and the measurement of interest bearing debt at amortised cost. The impact on profit and loss would be different due to both the amortized cost measurement of interest-bearing debt and the effects of hedge accounting. Based on the same simulations described above the profit and loss effect for 2011 would, by a 10 percent decrease in the yield curve, represent a decrease in fair value of NOK 150 million or an increase in fair value of NOK 155 million by a similar increase in the yield curve. For 2010 the profit and loss effects would have been a decrease in fair values of NOK 135 million and an increase in fair values of NOK 143 million, respectively. Effects on interest expenses Interest rate movements would also affect interest expense from floating rate borrowings. The sensitivity analysis is run for floating rate liabilities, and reflects a 10 percent change in the interest rate by year end. If all interest rates for all currencies had weakened/strengthened by 10 percent for Telenor ASA and all subsidiaries, with all other variables held constant, interest expenses for the Group would have been NOK 34 million higher/lower as of 31 December 2011 (NOK 22 million as of 31 December 2010). Exchange rate risk The Group is exposed to changes in the value of NOK relative to other currencies. The carrying amount of the Group’s net investments in foreign entities varies with changes in the value of NOK compared to other currencies. The net income of the Group is also affected by changes in exchange rates, as the profit and losses from foreign operations are translated into NOK using the average exchange rate for the period. If these companies pay dividends, it will typically be paid in currencies other than NOK. Exchange rate risk related to some net investments in foreign operations is partly hedged by issuing debt instruments in the currencies involved, when this is considered appropriate. Combinations of money market instruments (Commercial Paper and bonds) and derivatives (foreign currency forward contracts and cross currency swaps) are typically used for this purpose. Exchange rate risk also arises when Telenor ASA or any of its subsidiaries enter into transactions denominated in other currencies than their own functional currency, including agreements made to acquire or dispose assets in a foreign currency. In accordance with Group Policy Treasury committed cash flows in foreign currency equivalent to NOK 50 million or above, are hedged economically by using forward contracts. When possible, cash flow hedge accounting is applied for these transactions. Exchange rate risk related to debt instruments in other currencies than the functional currencies of Telenor ASA or any of its subsidiaries is also a part of the financial risk exposure of the Group. Cross currency swaps are occasionally used to eliminate such exchange rate risk. Fair value hedge accounting is applied for these transactions when possible. Short-term foreign currency swaps are frequently used for liquidity management purposes. No hedging relationships are designated in relation to these derivatives. Derivative (and non-derivative) instruments designated as hedging instruments of net investment in foreign operations As of 31 December 2011 and 2010, material hedging positions are designated as net investment hedges. There are no ineffectivenesses in the years ending 31 December 2011 and 2010. Net investment hedging relationships NOK in millions Effective part recognised directly to other comprehensive income 2011 2010 3 606 Hedging as described above is only carried out in currencies that have well-functioning capital markets. Interest-bearing debt is designated as hedging instruments. Fair value of interest-bearing debt designated as hedging instruments in net investment hedges...
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This document was uploaded on 03/21/2014.

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