Page 256 - Tata_Chemicals_yearly-reports-2017-18

(iii) The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment
grade credit ratings. The fair value of derivative financial instruments is based on observable market inputs including currency spot
and forward rate, yield curves, currency volatility, credit quality of counterparties, interest rate curves and forward rate curves of the
underlying commodity etc. and use of appropriate valuation models.
(iv) The fair value of non-current borrowings carrying floating-rate of interest is not impacted due to interest rate changes, and will not
be significantly different from their carrying amounts as there is no significant change in the underlying credit risk of the Group
(since the date of inception of the loans).
(v) The fair values of the 10% unsecured redeemable non-convertible debenture (included in non-current borrowings) are derived
from quoted market prices. The Group has no other long-term borrowings with fixed-rate of interest.
(e) Financial risk management objectives

The Group is exposed to market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Group’s
risk management strategies focus on the un-predictability of these elements and seek to minimise the potential adverse effects on its
financial performance. The Board of Directors/Committee of Board of the respective operating entities approve the risk management
policies. The implementation of these policies is the responsibility of the operating entities. The Board of Directors/Committee of Board
of the respective operating entities periodically review the exposures to financial risks, and the measures taken for risk mitigation and the
results thereof.
All hedging activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and
supervision. The Group’s policy is not to trade in derivatives for speculative purposes.
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
Particulars As at As at
31 March, 2018 31 March, 2017
USD exposure*
Assets 1,151.52 1,019.56
Liabilities (941.62) (1,875.75)
Net 209.90 (856.19)
Derivatives to hedge USD exposure
Forward contracts - (USD/INR) 115.03 499.30
Option contracts - (USD/INR) 6.04 -
Cross currency swaps 825.96 1,232.15
947.03 1,731.45
Net exposure 1,156.93 875.26
* includes exposure relating to discontinued operation.
The Group’s exposure to foreign currency changes for all other currencies is not material.

254 Annual Report 2017-18