(i) Interest rate risk The Executive is exposed to marginal risk in terms of its exposure to interest rate movements on its borrowings and investments.
Borrowings are not carried at fair value, so nominal gains and losses on fixed rate borrowings would not impact on the Income & Expenditure Account or Statement of Recognised Gains and Losses. However, changes in interest payable and receivable on variable rate borrowings and investments will be posted to the Income & Expenditure Account. Movements in the fair value of fixed rate investments will be reflected in the Statement of Recognised Gains and Losses.
(ii) Price risk The Executive does not generally invest in equity shares but the Group Accounts do reflect shareholdings in a number of subsidiaries. The Group is consequently exposed to losses arising from movements in the prices of the shares.
As the shareholdings have arisen in the acquisition of specific interests, the Group is not in a position to limit its exposure to price movements by diversifying its portfolio.
The shares are all classified as ‘available for sale’, meaning that all movements in price will impact on gains and losses recognised in the Statement of Recognised Gains and Losses.
(iii) Foreign exchange risk The Executive has no financial assets or liabilities denominated in foreign currencies and thus has no exposure to loss arising from movements in exchange rates.
In all cases, the carrying value of financial instruments is a reasonable approximation to fair value.
The borrowings and investments in the balance sheet are made up of the following categories:-