121 CONSOLIDATED FINANCIAL STATEMENTS 2023 Barbados Public Workers’ Co-operative Credit Union Limited Notes to the Consolidated Financial Statements March 31, 2023 (expressed in Barbados dollars) 89 25 Financial Risk Management …continued 25.4 Market risk …continued Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices. The Group is mainly exposed to interest rate risk. The Group’s exposure to currency risk is minimal as a result of the fixed rate of exchange between the Barbados and Eastern Caribbean dollar. Interest rate risk Interest rate risk is the risk of loss from the fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. It arises when there is a mismatch between interestbearing assets and interest-bearing liabilities, which are subject to interest rate adjustments, within a specified period. It can be reflected as a loss of future net interest income and/or a loss of current market values. An interest rate sensitivity analysis was performed to determine the impact on profit of reasonable possible changes in the interest rates prevailing as at March 31, 2023, with all other variables held constant. The impact is illustrated and shown in the table below: 2023 $ 2022 $ Increase/decrease of 100 bps Impact on profit + 100 bps (4,566,748) (3,736,523) Impact on profit - 100 bps 4,253,664 3,701,097 Interest rate benchmark reform A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR reform’). The Credit Union does not have significant exposure to IBORs on its financial instruments that will be reformed as part of this market-wide initiative. Currency risk Currency risk arises when future commercial transactions, recognised assets and liabilities are denominated in a currency that is not the Group’s functional currency. The Group is exposed to foreign exchange risk primarily with respect to EC dollars. Management monitors economic and political conditions in the countries in which the Group operates for risks of currency fluctuations.
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