Notes to the Consolidated Financial Statements  continued FAIR VALUES 64 First Capital Realty Annual Report 2003 The fair values of the majority of the Company’s financial assets and liabilities, representing net working capital, approximate their recorded values at December 31, 2003 and 2002 due to their short-term nature. The fair value of the Company’s loans and mortgages receivable approximates carrying value. The fair value of the Company’s mortgages and credit facilities approximates carrying value.  Based on publicly traded listing prices, as at December 31, 2003, the market value of the principal amount of the convertible debentures was $355.9 million (2002 – $364.4 million). At December 31, 2003, there are outstanding forward exchange contracts to sell a notional amount of US$7.0 million, maturing over the next six months at a weighted average exchange rate of Cdn$1.33. The fair value of the outstanding forward exchange contracts, based on cash settlement requirements at December 31, 2003, is a positive value of $0.2 million due to changes in the foreign currency exchange rate since the date on which the contracts were made. The fair value of the Company’s interest rate swap and cap contracts is a negative value of approximately $0.6 million due to changes in interest rates since the contracts were entered into. (a) Interest Rate Risk (b) Credit Risk (c) Currency Risk The Company attempts to structure its financings so as to stagger the maturities of its debt, thereby mitigating its exposure to interest rate fluctuations. Credit risk arises from the possibility that tenants and/or debtors may experience financial difficulty and be unable to fulfill their lease commitments. The Company mitigates the risk of credit loss by ensuring that its tenant mix is diversified, by limiting its exposure to any one tenant and by the hypothecated properties. Thorough credit assessments are conducted in respect of all new leasing. The Company maintains its accounts in Canadian dollars. However, a portion of its operations are located in the United States and therefore the Company is subject to foreign currency fluctuations which may, from time to time, impact its financial position and results. The Company’s U.S. operations are financed in part by U.S. dollar-denominated credit facilities, which are serviced by the cash flow generated by the Company’s dividends from Equity One. This reduces the Company’s exposure to fluctuations in foreign currency exchange rates. The Company has not hedged its net U.S. dollar currency risk. As a result, a strengthening of the Canadian dollar would result in a reduction in the carrying value of the Company’s net assets in the United States. 17 Risk Management and Fair Values RISK MANAGEMENT In the normal course of its business, the Company is exposed to a number of risks that can affect its operating performance. These risks, and the actions taken to manage them, are as follows: