The American Club 2016/2017 Annual Report

THE AMERICAN CLUB

NOTES TO FINANCIAL STATEMENTS 30 June 2017

4. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT (cont’d)

(ii) Interest rate risk

The main source of interest rate risk is the interest-bearing fixed deposit. The Club’s policy is to obtain favourable interest rates that are available. Interest rate from interest income for the financial year is between 0.65% to 1.38% (2016 : 0.63% to 1.41%) per annum. No sensitivity analysis is prepared as the Club does not expect any material effect on the Club’s profit and loss arising from the effects of reasonably possible changes to interest rates on interest bearing financial instruments at the end of the reporting period. Credit risk refers to the risk that members will default on their contractual obligations resulting in financial loss to the Club. The Club has adopted procedures in monitoring collections from members and in monitoring default of payments from members. The maximum exposure to credit risk in the event that members fail to perform their obligations as at the end of the financial year in relation to each class of recognised financial assets is the carrying amount of those assets stated in the statement of financial position.

(iii) Credit risk management

The Club places its cash and investments with creditworthy financial institutions.

(iv)Market price risk management

Market price risk refers to the risk that the fair value or future cash flows of the Club’s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The Club is exposed to market price risk arising mainly from its investment in unquoted mutual funds. The net asset value (“NAV”) per share is published by the administrator - International Fund Services (N.A.) L.L.C., and are classified as available-for-sale financial assets. Specific investment guidelines are used to monitor the risk in the Club’s investments.

Market price risk sensitivity

If the GAP returns had been NIL% (2016 : 6%) higher or lower with all other variables held constant, The Club’s other reserve in equity would have been increased or decreased by $NIL (2016 : $156,702) respectively, as a result of an increase or decrease in the fair value of financial instruments classified as available-for-sale.

45 2016/17 ANNUAL REPORT