Financial assets valued through profit or loss continued

Notes to the financial statements for the year ended 31 December 2015 41

12. Financial risk and management objectives and policies continued

a Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads not relating to changes in the obligor’sissuer’s credit standing will affect the Petroleum Fund’s income or fair value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The maximum risk resulting from financial instruments equals their fair value. The Petroleum Fund’s strategy for the management of market risks is driven by the Fund’s investment objectives, including diversification of its investment portfolio, by specifying benchmarks in individual investment mandates with risk limits defined by maximum tracking errors. The Petroleum Fund’s market risk is thus managed on a regular basis by the investment managers in accordance with these investment mandates. i Equity price risk Equity price risk is the risk of unfavourable changes in the fair values of equities or equity-linked derivatives as the result of changes in the levels of equity indices and the value of individual shar es. The equity price risk exposure arises from the Fund’s investments in equity securities and from equity-linked derivatives. The Fund manages this risk by investing in a variety of stock exchanges and by limiting exposure to any one company or issuing entity, excluding sovereign states to 3 of net assets consistent with Article 15.5a of the Petroleum Fund Law. The Fund’s law limits equity investments to no more than 5 of the share capital of a particular issuer consistent with Article 15.3b of the Petroleum Fund Law. Management’s best estimate of the effect on the profit or loss for a year due to a reasonably possible change in equity indices, with all other variables held constant is indicated in the table below. There is no effect on ‘other comprehensive income’ as the Fund has no assets classified as ‘available-for-sale’ or designated hedging instruments. In practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material. An equivalent decrease in each of the indices shown below would have resulted in an equivalent, but opposite, impact. The Petroleum Fund manages its exposure to equity price risk by analyzing the portfolio by industrial sector and country each month, and benchmarking the performance of each sectorcountry to the MSCI World Index, by considering the performance of the Fund attributable to stock allocation, security selection and the interaction effect. Summarized sensitivity analysis The following table summarizes the sensitivity of the Funds operating profit and net assets to price risk. The analysis is based on reasonably possible movements in the benchmark with all other variables held constant and the fair value of the Funds portfolio moving according to the movement in the benchmark. The reasonably possible movements in the risk variables have been determined based on the investment managers’ best estimates, having regard to a number of factors, including historical levels of changes in market index, security prices andor benchmark returns and interest rates. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the economies, markets and securities to which the variable is exposed. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables. The table below shows the impact on operating profitnet assets resulting from a 10 change in the price of equities. Price risk Impact on operating profit Net assets -10.00 +10.00 31 December 2015 642,439,375 642,439,375 31 December 2014 657,966,401 657,966,401 The Petroleum Fund has determined that a fluctuation in equity prices of 10 is reasonably possible within a one year period based on historical movements in global equity markets. ii Interest rate risk Interest rate risk arises from the possibility that an investments fair value or associated future cash flows will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. The majority of interest rate exposure arises on investments in debt securities in the United States of America, and to a lesser extent, the rest of the developed world. Most of the Petroleum Fund’s investments in debt securities carry fixed interest rates and mature within ten years. The Petroleum Fund manages this risk by investing according to well-defined industry benchmarks with specified duration target and tracking error limit. The assets and the Petroleum Fund will re-price or mature within the following periods: Notes to the financial statements for the year ended 31 December 2015 42

12. Financial risk and management objectives and policies continued

a Market risk continued ii Interest rate risk continued As at 31122015 USD FINANCIAL ASSETS Statement of financial position Non-interest sensitive 6 months or less 6 to 12 months 1 to 2 years 2 to 5 years 5- 10 years Over 10 years Cash and cash equivalents 135,176,810 - 135,176,810 - - - - - Other receivables 26,890,851 26,890,851 - - - - - - Financial assets at fair value through profit or loss 16,076,302,454 6,424,393,754 34,277,333 60,988,132 180,339,784 6,991,075,286 1,944,583,922 440,644,243 Total assets 16,238,370,115 6,451,284,605 169,454,143 60,988,132 180,339,784 6,991,075,286 1,944,583,922 440,644,243 Weighted average interest rate 0.81 1.76 2.47 1.59 1.80 0.69 As at 31122014 USD FINANCIAL ASSETS Statement of financial position Non-interest sensitive 6 months or less 6 to 12 months 1 to 2 years 2 to 5 years 5- 10 years Over 10 years Cash and cash equivalents 66,842,141 - 66,842,141 - - - - - Other receivables 20,063,101 20,063,101 - - - - - - Financial assets at fair value through profit or loss 16,466,483,685 6,579,664,007 44,222,766 50,606,515 92,779,228 7,197,227,704 2,073,355,264 428,628,201 Total assets 16,553,388,927 6,599,727,108 111,064,907 50,606,515 92,779,228 7,197,227,704 2,073,355,264 428,628,201 Weighted average interest rate 2.46 3.42 2.44 1.25 1.90 0.64 Summarised sensitivity analysis The following table summarises the sensitivity of the Funds operating profit and net assets attributable to interest rate risk. The analysis is based on reasonably possible movements in the benchmark with all other variables held constant and the fair value of the Funds portfolio moving according to the movement in the benchmark. The reasonably possible movements in the risk variables have been determined based on the investment managers’ best estimates, having regard to a number of factors, including historical levels of interest rates. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the economies, markets and securities to which the variable is exposed. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables. Interest rate risk Impact on operating profit Net assets -1.00 +1.00 31 December 2015 463,597,009 463,597,009 31 December 2014 469,201,057 469,201,057 The Petroleum Fund has determined that a fluctuation in interest rates of 1 is reasonably possible within a given one-year time period, given the economic environment in which the Fund operates. In determining the impact of an increasedecrease in net assets arising from market risk, management of the Fund has considered prior period and expected future movements of the portfolio based on market information.