Urban Renewal Authority 2018-19 Annual Report

139 (expressed in Hong Kong Dollars) NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (Continued) (u) Related parties (Continued) (ii) An entity is related to the Group if any of the following conditions applies: (1) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (2) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. (3) The entity is controlled or jointly controlled by a person identified in (i). (4) A person identified in (i)(1) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. 3. Financial risk management and fair value of financial instruments (a) Financial risk factors The Group’s activities expose it to a variety of financial risks: cash flow interest rate risk, credit risk, liquidity risk, price risk and foreign exchange risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise the potential adverse effects on the Group’s financial performance. (i) Cash flow interest rate risk The Group is exposed to cash flow interest rate risk due to the fluctuation of the prevailing market interest rate on bank deposits. Nevertheless, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. (ii) Credit risk Credit risk is managed on a group basis. Credit risk arises from cash and bank balances, building rehabilitation loans, and trade and other receivables. The credit risk on investments at amortised cost and investments at fair value through profit or loss is limited as issuers are mainly with high credit ratings assigned by international credit rating agencies. The credit risk on cash and bank balances is limited because most of the funds are placed in banks with credit ratings, ranging from Aa1 to A3 and there is no concentration in any particular bank.