65 KATHMANDU A NNUAL REPORT  2013 26 FINANCIAL RISK MANAGEMENT United Kingdom and New Zealand. The Group does 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. 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. 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’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 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 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  Cash flow and fair value interest rate risk (a) Market risk Foreign exchange risk At the reporting date the interest rate profile of the Group’s banking facilities was: CARRYING AMOUNT GROUP PARENT 2013 2012 2013 2012 NZ$’000 NZ$’000 NZ$’000 NZ$’000 Total secured loans 42,309 53,737 - - less Principal covered by interest rate swaps (44,972) (45,940) - - Net Principal subject to floating interest rates*1 (2,663) 7,797 - - 1. Debt levels fluctuate throughout the year and as at 31 July, are typically at a cyclical low. Interest rates on loans currently range from 3.53% – 3.73% (2012: 3.59% – 4.47%). 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 $659,211 (2012: $986,157).