39. FINANCIAL RISK MANAGEMENT POLICIES (CONT’D.) The policies in respect of the major areas of treasury activities are as follows: (cont’d.) (e) Fair value measurement (cont’d.) The following table presents the Group’s and Company’s assets and liabilities that are measured at fair value. (cont’d.) Level 1 Level 2 Level 3 Total Company RM’million RM’million RM’million RM’million 31 December 2021 Assets Financial assets at fair value through profit or loss – Early redemption option – 165 – 165 31 December 2020 Assets Investment securities 133 43 – 176 Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted prices are readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an on-going basis. These would include actively traded listed equities and actively exchange-traded derivatives. Where fair value is determined using unquoted market prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and Company then determine fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high. These would include certain bonds, government bonds, corporate debt securities, repurchase and reverse purchase agreements, loans, credit derivatives, certain issued notes and the Group’s and Company’s over the counter (“OTC”) derivatives. Specific valuation techniques used to value financial instruments include: • The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves; • The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value; • The fair value of fuel swap contracts is determined using forward fuel price at the balance sheet date, with the resulting value discounted back to present value. Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or other analytical techniques, including discounted cash flow projections. F I N A N C I A L S T A T E M E N T S A N N U A L R E P O R T 2 0 2 1 3 0 9
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