Page 311 - Tata_Chemicals_yearly-reports-2019-20

Integrated report Statutory reportS Financial StatementS
Consolidated

Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk, such as equity price risk and
commodity price risk. the value of a financial instrument may change as a result of changes in the interest rates, foreign currency
exchange rates, equity price fluctuations, commodity price, liquidity and other market changes. Financial instruments affected by
market risk include borrowings, deposits, investments and derivative financial instruments.

Foreign currency risk management
Foreign exchange risk arises on future commercial transactions and all recognised monetary assets and liabilities which are
denominated in a currency other than the functional currency of the entities of the group. the foreign exchange risk management
policy requires operating entities to manage their foreign exchange risk against their functional currency and to meet this objective
they enter into derivatives such as foreign currency forwards, option and swap contracts, as considered appropriate and whenever
necessary.

the group has international operations and hence, it is exposed to foreign exchange risk arising from various currencies, primarily
with respect to uSd. as at the end of the reporting period, the carrying amounts of the group’s foreign currency denominated
monetary assets and liabilities, in respect to the primary foreign currency exposure i.e. uSd, and derivative to hedge the foreign
currency exposure are as follows:
` in crore
As at As at
March 31, 2020 March 31, 2019
USD exposure
assets 194.48 273.88
liabilities (255.97) (715.91)
Net (61.49) (442.03)
Derivatives to hedge USD exposure
Forward contracts - (uSd/Inr) 13.31 31.54
option contracts - (uSd/Inr) - 10.37
Cross currency interest rate swaps - 438.85
13.31 480.76
Net exposure (48.18) 38.73
the group’s exposure to foreign currency changes for all other currencies is not material.

Foreign currency sensitivity analysis
the following table demonstrates the sensitivity to a reasonable possible change in uSd exchange rate, with all other variables held
constant. the impact on the group’s profit before tax due to changes in the fair value of monetary assets and liabilities and derivatives
is as follows:
` in crore
As at As at
March 31, 2020 March 31, 2019
If Inr had (strengthened) / weakened against uSd by
5% (decrease) / increase in profit for the year (2.41) 1.94
Based on the movements in the foreign exchange rates historically and the prevailing market conditions as at the reporting date, the
group’s Management has concluded that the above mentioned rates used for sensitivity are reasonable benchmarks.

Interest rate risk management
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
rates. the group’s exposure to the risk of changes in market rates relates primarily to the group’s non-current debt obligations with
floating interest rates.

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