20. FINANCIAL INSTRUMENTS

The Group manages its exposure to financial risks using a variety of techniques and instruments. Entering into speculative transactions is specifically prohibited. Foreign exchange risk Foreign currency transaction exposures are covered on a consistent basis by forward contracts and options. Foreign exchange contracts are also used to hedge investment in foreign subsidiaries and associates, where the currency concerned is anticipated to be volatile and where the exposure of the Group is material. Consistent with the Group policy on covering transaction exposures, the purpose of these hedges is to smooth out the impact of movements in foreign exchange rates over time. Interest rate risk The Group is exposed to interest rate risk through the impact of rate changes on interest bearing liabilities and assets. These exposures are managed partly by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities, and partly through the use of derivative financial instruments such as interest rate swaps, caps and options. Funding risk The Group's ability to fund its existing and prospective debt requirements is managed by maintaining the availability of adequate committed funding lines from high quality lenders. Counterparty risk The Group's ownership of financial assets involves the risk that counterparties may be unable to meet the terms of their agreements. The Group manages these risks by monitoring credit ratings and limiting the aggregate risk to any individual counterparty.

Fair Values The fair values of the Group's financial assets and liabilities, before taking account of hedging transactions, are summarised as follows:

1997 1996 Carrying amount US$m Fair value US$m Carrying amount US$m Fair value US$m Financial assets Fixed asset investments 0.4 0.4 0.9 0.9 Debtors 181.3 181.3 226.0 226.0 Bank balances 608.4 608.4 544.0 544.0 790.1 790.1 770.9 770.9 Financial liabilities Creditors and accurals 921.5 921.5 945.5 945.5 Bank advances 112.3 112.3 125.4 125.4 Term loans 422.5 420.9 602.4 602.2 1,456.3 1,454.7 1,673.3 1,673.1 The fair value of debtors, bank balances, creditors and accruals, and bank advances approximate their carrying amount due to the short-term maturities of these assets and liabilities. The fair value of term loans is estimated using the expected future payments discounted at market interest rates. Currency profile The currency profile of the Group's financial assets and liabilities, before taking account of hedging transactions, are summarised as follows: 1997 1996 Financial assets US$m Financial liabilities US$m Financial assets US$m Financial liabilities US$m Currency Australian Dollar 69.5 441.1 90.1 546.8 Hong Kong Dollar 107.8 442.4 116.3 422.7 Japanese Yen 10.5 30.4 12.2 31.8 New Taiwanese Dollar 15.2 95.6 19.8 127.3 New Zealand Dollar 20.5 181.6 23.6 226.9 Singapore Dollar 17.8 65.3 25.0 74.9 Spanish Peseta 18.5 132.2 24.5 170.3 United Kingdom Sterling 0.2 3.0 8.2 8.8 United States Dollar 523.2 56.7 445.1 55.6 Other 6.9 8.0 6.1 8.2 790.1 1,456.3 770.9 1,673.3   Derivative financial instruments 1997 1996 Contract amount US$m Fair value asset US$m Fair value liability US$m Contract amount US$m Fair value asset US$m Fair value liability US$m Analysis of forward sale   foreign exchange contracts United Kingdom Sterling 115.4 1.1 0.6 104.1 - 2.0 Spanish Peseta 101.2 0.8 - 28.0 0.6 - Analysis of interest rate swaps Australian Dollar 169.9 - 2.7 175.2 - 5.1 Hong Kong Dollar 77.4 5.4 - 77.6 - 1.4 New Zealand Dollar 23.2 0.4 - - - - United States Dollar 77.6 0.4 0.2 77.6 0.2 0.5 The fair value of derivative financial instruments represents the unrealised gains or losses of open contracts of which a net gain of US$1.3 million (1996: net loss of US$1.4 million) is recognised in the Financial Statements.