Managing our interest rate risk

Managing our interest rate risk (continued)
(b) Sensitivity
We have performed a sensitivity analysis based on the interest rate
risk exposures of our financial instruments as at 30 June, showing
the impact that a 10 per cent shift in interest rates would have on our
profit after tax and on equity. In accordance with our policy to swap
foreign currency borrowings into Australian dollars, interest rate
sensitivity relates primarily to movements in Australian interest
rates.
Table B shows the results of our sensitivity analysis.
A shift of 10 per cent has been selected as a reasonably possible
change in interest rates based on the current level of both short-term
and long-term interest rates. This is not a forecast or prediction of
future market conditions.
The results of the sensitivity analysis are driven by the following main
factors:
• any increase or decrease in interest rates will impact our net
unhedged floating rate financial instruments and therefore will
directly impact profit or loss
• changes in the fair value of derivatives which are part of effective
cash flow hedge relationships are deferred in equity with no
impact to profit or loss
• changes in the fair value of foreign currency basis spreads
associated with our cross currency swaps are deferred in equity
• there is no net impact on profit or loss as a result of fair value
movements on derivatives designated in effective fair value hedge
relationships as there will be an offsetting adjustment to the
underlying borrowing
• the analysis does not include the impact of any management
action that might take place if a 10 per cent shift were to occur

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