20 Financial instruments Financial risk management objectives The Consolidated Entity’s principal financial instruments comprise cash and short term deposits, the main purpose of which is to finance the Consolidated Entity’s operations. The Consolidated Entity has various other financial assets and liabilities such as trade receivables and trade payables which arise directly from its operations and, as at 30 June 2022. The main risks arising from the Consolidated Entity’s financial instruments are credit risk, interest rate risk, exchange rate risk and liquidity risk. The Board of Directors has reviewed each of those risks and has determined that, overall, they are not significant in terms of the Consolidated Entity’s current activities. The Consolidated Entity may also enter into derivative financial instruments, principally forward currency contracts. The purpose is to manage the currency risks arising from the Consolidated Entity’s operations. Speculative trading in derivatives is not permitted. There are no derivatives outstanding at 30 June 2022 (2021: $nil). Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 2 to the consolidated financial statements. Market risk Foreign currency risk Generally, the Consolidated Entity’s main exposure to exchange rate risk relates primarily to trade payables and cash denominated in EUR, arising in relation to its activities in Cuba. Where a payable is significant, EURmay be purchased on incurring the liability or commitment. The Consolidated Entity’s exposure to unhedged financial assets and liabilities at balance date is as follows: 30-June-22 $ 30-June-21 $ US$ Financial assets Cash on hand at bank 6,430,067 27,386 US$ Financial liabilities Payables 55,512 2,751 EUR Financial assets Cash on hand at bank 4,617,185 10,013,959 EUR Financial liabilities Payables 6,103,635 211,542 CAD Financial liabilities Payables 3,222,218 324,730 The Consolidated Entity had net assets denominated in foreign currencies as at 30 June 2022 of $3,382,096 (2021: $9,502,502). Based on this exposure, had the Australian dollar strengthened by 10% / weakened by 10% (2021: strengthened by 10% and weakened by 10%) against these foreign currencies with all other variables held constant, the Consolidated Entity’s loss before tax for the year would have been $307,463 higher and $375,788 lower (2021: $863,864 higher / $1,055,833 lower) and equity would have been $307,463 lower / $375,788 higher (2021: $863,864 lower / $1,055,833 higher). The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months and the spot rate at each reporting date. Notes to the Consolidated Financial Statements for the year ended 30 June 2022 42 Melbana Energy Limited Annual Report 2022
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