19.  Risk management (continued): (c) Market risk:  The agreements and indentures governing indebtedness of the REIT contain certain covenants that, among other things,  require the REIT to maintain certain financial ratios and thresholds and impose on the REIT certain restrictions (subject  in each case to exceptions) regarding: the disposition of the Bow, lands related to the Bow; the creation of liens or  granting of negative pledges; the purchase or redemption of securities; the entering into any merger or similar  transaction with any person; changes of a fundamental nature (including senior management, business objectives,  purposes or operations, capital structure, constating documents, and subordinated debt); the cancellation or waiver of  material contracts and changes to the Bow budget. As a result, the REIT is limited by such covenants and restrictions.  Management monitors its liquidity risk through review of financial covenants contained in debt agreements and in  accordance with the Declaration of Trust. In order to maintain liquidity, the REIT has a general operating facility, as  described in note 9(a), available to draw on to fund its obligations. The REIT is subject to currency risk and interest rate risk. The REIT’s objective is to manage and control market risk  exposure within acceptable parameters, while optimizing the return on risk.  The REIT is exposed to interest rate risk on its borrowings. It minimizes this risk by obtaining long-term fixed  interest rate debt. At December 31, 2010, the percentage of fixed rate debt to total debt was 97.5% (2009 -  99.6%). As at December 31, 2010 and 2009, the REIT does not account for any of its fixed rate financial liabilities  as held-for-trading. Therefore, a change in interest rates at the reporting date would not affect net income with  respect to these fixed rate instruments.  A $0.10 weakening of the U.S. dollar against the average Canadian dollar exchange rate of $1.03 for the year  ended December 31, 2010 (2009 - $1.14) would have decreased other comprehensive income by approximately  $13,600 (2009 - $18,800) and increased (decreased) net earnings by approximately ($500) (2009 - $2,300). This  analysis assumes that all the variables, in particular interest rates, remain constant (a $0.10 weakening of the  Canadian dollar against the U.S. dollar at December 31, 2010 would have had the equal but opposite effect).  During the year ended December 31, 2010, the REIT entered into a foreign exchange forward contract with a  Canadian chartered bank effectively locking the REIT’s rate to exchange U.S. $2,000 per month at 1.0402 for a  two-year period expiring in April 2012. The fair value of this foreign exchange forward contract as at December  31, 2010 is $1,225. The change in fair value of $1,225 and the related $49 foreign exchange gain for the year  ended December 31, 2010, have been recorded as total unrealized gain of $1,274.  A portion of the REIT’s properties are located in the United States, resulting in the REIT being subject to foreign  currency fluctuations which may impact its financial position and results. In order to mitigate the risk, the REIT’s  debt on these properties is also held in U.S. dollars to act as a natural hedge. (i) Currency risk:  (ii) Interest rate risk:  32  H&R REAL ESTATE INVESTMENT TRUST  H&R FINANCE TRUST  Notes to Combined Financial Statements   (In thousands of dollars, except unit and per unit amounts)  Years ended December 31, 2010 and 2009 