21 FINANCIAL RISK MANAGEMENT (CONT'D) Overview of risk management The Group’s activities expose it to market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk in the normal course of its business. The Group’s overall risk management strategy seeks to minimise adverse effects from the unpredictability of financial markets on the Group’s financial performance. The Board of Directors of the Manager is responsible for setting the objectives and underlying principles of financial risk management for the Group. This is supported by comprehensive internal processes and procedures which are formalised in the Manager’s organisational and reporting structure, operating manuals and delegation of authority guidelines. Market risk Foreign Currency risk Foreign currency risk arises when transactions are denominated in a currency other than the functional currency of the Group, and such changes will impact the Group’s profit. The Group has transactional currency exposures arising from cash and cash equivalents and trade and other payables that are denominated in a currency other than its functional currency. These transactions are mainly denominated in Singapore Dollars (“SGD”). Where appropriate, based on the prevailing market conditions, the Group may adopt suitable hedging strategies to minimise any foreign exchange risk. The exposures to currency risk of the Group and the Trust are as follows: Group Trust 2024 US$’000 2023 US$’000 2024 US$’000 2023 US$’000 Cash and cash equivalents 1,014 1,964 991 1,944 Trade and other payables (600) (1,403) (525) (1,325) Net assets 414 561 466 619 A 5.0% weakening of USD against the following foreign currency at the reporting date would increase the profit or loss by the amounts shown below. This sensitivity analysis assumes that all other variables, in particular, interest rates, remain constant. Group Trust 2024 US$’000 2023 US$’000 2024 US$’000 2023 US$’000 SGD 21 28 23 31 A 5.0% strengthening of USD against the above currency would have had an opposite effect of similar quantum on the above currency to the amounts shown above, on the basis that all other variables remain constant. Interest rate risk As at 31 December 2024, the Group had US$517.0 million (2023: US$845.0 million) of fixed rate interest-bearing borrowings, including borrowings which are hedged with interest rate swaps, and US$228.0 million (2023: US$80.7 million) of unhedged variable rate interest-bearing borrowings. For the variable rate interest-bearing borrowings, a 1.0% increase in interest rate at the reporting date, with all other variables held constant, would decrease the Group’s profit or loss by US$2.3 million (2023: US$0.8 million). A 1.0% decrease in interest rate would have had an opposite effect of similar quantum on the basis that all other variables remain constant. 182 | MANULIFE US REIT NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2024
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