25. Financial risk management objectives and policies continued Exposure to currency, interest rate and credit risk arises in the normal course of the Group’s business. The Board of Directors reviews and agrees policies  for managing each of these risks which are summarised below:  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 prices  comprise three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. Financial instruments affected by market risk include  loans and borrowings, deposits, available-for-sale investments, and derivative financial instruments.  The Group earns interest from deposits and uses money market deposits with highly rated financial institutions. During the year, the Group has held  cash on deposit with a range of maturities from one week to one month. This can vary in view of changes in the underlying currency’s interest rates and  the Group’s cash requirements.  The Group pays interest on amounts received in connection with the factoring agreement as prescribed below.  The Group has no long-term debt outstanding under short-term credit facilities as at 31 December 2012 (2011: nil).  The Group’s policy is to manage its interest income using a mix of fixed and variable interest rate debts. In order to achieve this policy, the Group invests  in highly liquid funds having a matching investment strategy. Once the operating business has been financed, short-term excess funds are invested in  floating interest rate securities. Only short-term deposits bear fixed interest rates.  The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s  profit before tax as well as the Group’s equity:  The main functional currency within the Group and the presentation currency for the consolidated financial statements is the US$. Accordingly, foreign  exchange risks arise from transactions, and recognised assets and liabilities, the functional currency of which is not the US$. The currencies giving rise to  these exposure risks are primarily the Euro and Pound Sterling. The majority of the Group’s revenue and material expenses are denominated in US$. The  majority of other operating expenses are denominated in Euros and Pounds Sterling. The Group has transactional currency exposures. Such exposure  arises from the sales or purchases by an operating unit in currencies other than the unit’s functional currency. In 2012 and 2011 nearly all the Group’s  sales were denominated in US$.  The Group uses forward currency contracts as well as certain deposits (together referred to as the “hedging instruments”) to eliminate the currency  exposure of recurring expected payments, such as salaries, wages and office rents non-US$ denominated. The hedging instruments must be the same  currency as the hedged item.  It is the Group’s policy not to enter into forward contracts nor classify deposits as non-derivative hedging instruments until a firm commitment is in place  and to maximise hedge effectiveness by negotiating the terms of hedge instruments to match the terms of the hedged item.  The following table demonstrates the sensitivity to a reasonably possible change in the US$ exchange rate, with all other variables held constant, of the  Group’s profit before tax (resulting from changes in the fair value of monetary assets, excluding securities, and liabilities) and changes in the Group’s  equity (resulting in addition from changes in the fair value of deposits designated as cash flow hedges).  Market risk  Interest risk  105 Currency risk  Increase/decrease in  basis points  Effect on profit US$000 Effect on equity US$000 2012  83  2,081 2,081 (54) (1,360) (1,360) 2011  34  129 129 (34) (129) (129)