64 annual report 2012  kAThMANdu 26 FINANCIAL RISk MANAGEMENT (a) Market risk Foreign exchange risk Cash flow and fair value interest rate risk the Group’s activities expose it to a variety of financial risks,  market risk (including currency risk and interest rate risk), credit  risk and liquidity risk. the Group’s overall risk management  programme focuses on the unpredictability of financial markets  and seeks to minimise potential adverse effects on the  financial performance of the Group. the Group uses derivative  financial instruments such as foreign exchange contracts  and interest rate swaps to manage certain risk exposures.  derivatives are exclusively used for economic hedging  purposes, i.e. not as trading or other speculative instruments,  however not all derivative financial instruments qualify for  hedge accounting. risk management is carried out based on policies approved  by the Board of directors. the Group treasury policy provides  written principles for overall risk management, as well as  policies covering specific areas, such as foreign exchange risk.  the parent is not directly exposed to any significant financial  risk. the Group operates internationally and is exposed to foreign  exchange risk arising from various currency exposures,  primarily with respect to the aud, uSd and the GBp. the  Group is exposed to currency risk on conversion of the trading  results from its subsidiaries operating in australia and the  united Kingdom, and any cash remitted between australia  and the united Kingdom and new Zealand. the Group does  at the reporting date the interest rate profile of the Group’s banking facilities was: refer to note 10 for notional principal amounts and valuations  of interest rate swaps outstanding at balance date. a  sensitivity analysis of interest rate risk on the Group’s financial  assets and liabilities is provided in the table below. refer to  note 17 for further details of the Group’s borrowings. the Group’s main interest rate risk arises from floating rate  borrowings drawn down under bank debt facilities. the Group  uses interest rate swaps to hedge floating rate borrowings in  accordance with the Group treasury policy. Interest rate swaps  have the economic effect of converting borrowings from  floating to fixed rates. refer to note 10 which shows the forward foreign exchange  contracts held by the Group as derivative financial instruments  at balance date. a sensitivity analysis of foreign exchange rate  risk on the Group’s financial assets and liabilities is provided in  the table below. not hedge for such remittances. the Group is exposed to  purchases that are denominated in a currency other than  the functional currency of Group entities, and over 90% of  purchases are denominated in united States dollars. hedging  of this exposure is detailed in note 10. Interest on borrowings  is denominated in either new Zealand dollars or australian  dollars, and is paid for out of surplus operating cashflows  generated in new Zealand or australia. Interest rates on loans currently range from 3.59% – 4.47% (2011: 3.65% – 5.99%). the Group has entered into interest rate  swap agreements to reduce the impact of changes in interest rates on its long-term debt. the cashflow hedge (gain)/loss on  interest rate swaps at balance date was $986,157 (2011: $338,244). CArrYInG Amount Group pArent 2012 nZ$’000 2011 nZ$’000 2012 nZ$’000 2011 nZ$’000 Total secured loans 53,737 46,480 - - less principal covered by interest rate swaps (45,940) (40,284) - - Principal on floating interest 7,797 6,196 - -