Consolidated Financial Statements
Credit risk Credit risk is the risk that counterparties do not meet their obligations, so the other party incurs a financial loss. At the balance sheet date, there was no significant concentration of credit risk. The Company and its subsidiaries maintains its cash with high credit rated banks. Receivables are carried net of provision for doubtful debts. Commission rate exposure This relates to the Company’s and subsidiaries’ exposure to the risk of fluctuations in commission rates in the market and the potential impact on the consolidated financial position of the Company and its cash flows. The Company’s and subsidiaries’ commission rate risk arises mainly from its short- term deposits and borrowings. The Company is using commission rate swaps to fix the commission rates and uses commission rate caps to hedge the risk of increase in commission rate for its long-term loans. The Company monitors the commission rate changes and believes that expected commission rate changes on the Company after considering its hedges is not significant. Currency risk This relates to the risk of change in the value of financial instruments due to change in foreign currency rates. The Company’s and subsidiaries’ transactions are mainly in Saudi riyals, UAE Dirhams and US dollars. Management monitors the currency rate changes and believes that the impact of currency rate changes is not significant. Price risk Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio.
Liquidity risk This represents risks that the Company, including subsidiaries, will be unable to meet its funding requirements related to financial instruments. The liquidity risk arises if the entity cannot sell its financial assets quickly with an amount near to its fair value. Liquidity risk is managed by systematic monitoring to ensure availability of funds to meet any future liabilities as they become due. Fair Value Fair value is the amount used to exchange assets or to settle liabilities between parties having the knowledge and desire to do so on an arms-length basis. As the consolidated financial instruments of the Company are compiled based on historical cost convention, except for the investments in financial instruments, differences might occur between book value and estimates of fair values. The management believes that the fair value of financial assets and liabilities does not materially differ from its book value.
Annual Report 2009 The National Shipping Company of Saudi Arabia
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