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Currency risk is related to the possibility that financial results deteriorate as a result of changes in exchange rates.
The main sources of exposure to currency risk are presented below:
PGE Group controls currency risk through a system of limits relating to the maximum potential loss due to changes in exchange rates with respect to the consolidated currency risk exposure of Group companies. The currency risk measure is based on the value-at-risk, understood as a product of the amount of the absolute currency position and the value of a potential change in exchange rates.
Moreover, PGE Group sets out hedging strategies with respect to the consolidated currency risk exposure of Group companies using hedging ratios subject to approval by the Company’s Risk Committee and Management Board. The hedging strategy and level of currency risk are subject to monitoring and are reported to the Risk Committee on a regular basis.
PGE Group companies enter into derivative transactions concerning instruments that are based on currency only in order to hedge identified risk exposures.
Regulations in force at the PGE Group do not allow, with regard to derivative transactions based on currencies, to enter into speculative transactions, i.e. transactions which would be aimed at generating additional gains resulting from changes in exchange rates, while exposing the Company to the risk of incurring a potential loss on this account.
The Group’s exposure to currency risk by class of financial instruments:
| Total amount in the financial statements in PLN | CURRENCY POSITION AS AT DECEMBER 31, 2019 | ||||
|---|---|---|---|---|---|
| EUR | USD | ||||
| currency | PLN | currency | PLN | ||
| Trade and other financial receivables: | 4,995 | 148 | 629 | – | – |
| Cash and cash equivalents | 1,313 | 117 | 498 | 2 | 8 |
| Derivatives, including: | 420 | 1,108 | 4,718 | 62 | 237 |
| Measured at fair value through profit or loss | 368 | 490 | 2,087 | 62 | 237 |
| Hedging instruments | 52 | 618 | 2,631 | – | – |
| FINANCIAL ASSETS | 6,728 | 1,373 | 5,845 | 64 | 245 |
| Credit facilities, loans, bonds and leases | 12,308 | 209 | 888 | 22 | 83 |
| Trade and other payables measured at amortised cost | 5,040 | 18 | 73 | 39 | 147 |
| Derivatives, including: | 479 | 3,120 | 13,287 | 53 | 203 |
| Measured at fair value through profit or loss | 40 | 234 | 997 | 41 | 157 |
| Hedging instruments | 439 | 2,886 | 12,290 | 12 | 46 |
| FINANCIAL LIABILITIES | 17,827 | 3,347 | 14,248 | 114 | 433 |
The carrying amount of derivatives represents their fair value. The value of exposure to currency risk for forwards represents their notional amount in the currency. The value of exposure to currency risk for CCIRSs represents the value of discounted cash flows in the currency leg in the currency.
| Total amount in the financial statements in PLN | CURRENCY POSITION AS AT DECEMBER 31, 2018 | ||||
|---|---|---|---|---|---|
| EUR | USD | ||||
| currency | PLN | currency | PLN | ||
| Trade and other financial receivables: | 4,270 | 34 | 145 | 2 | 6 |
| Cash and cash equivalents | 1,281 | 21 | 89 | 1 | 3 |
| Derivatives, including: | 165 | 913 | 3,926 | 142 | 532 |
| Measured at fair value through profit or loss | 42 | 11 | 47 | 135 | 506 |
| Hedging instruments | 123 | 902 | 3,879 | 7 | 25 |
| FINANCIAL ASSETS | 5,782 | 968 | 4,160 | 145 | 541 |
| Credit facilities, loans, bonds and leases | 10,708 | 734 | 3,156 | 48 | 179 |
| Trade and other payables measured at amortised cost | 4,137 | 48 | 205 | 17 | 65 |
| Derivatives, including: | 136 | 1,296 | 205 | 122 | 459 |
| Measured at fair value through profit or loss | 64 | 74 | 318 | 122 | 459 |
| Hedging instruments | 72 | 1,222 | 5,255 | – | – |
| FINANCIAL LIABILITIES | 14,981 | 2,078 | 8,934 | 187 | 703 |
The carrying amount of derivatives represents their fair value. The value of exposure to currency risk for forwards represents their notional amount in the currency. The value of exposure to currency risk for CCIRSs represents the value of discounted cash flows in the currency leg in the currency.
