Financial risk and management objectives and policies

Petroleum Fund of Timor-Leste Notes to the financial statements for the year ended 31 December 2013

12. Financial risk and management objectives and policies continued

Summarised sensitivity analysis The following table summarises the sensitivity of the Funds operating profit and net assets attributable to unitholders 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 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. Interest rate risk Impact on operating profit Net assets As at 31122013: -1.00 As at 31122013: +1.00 As at 31122012: -1.00 As at 31122012: +1.00 31 December 2013 95,711,524 95,711,524 31 December 2012 384,848,370 384,848,370 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. iii Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Petroleum Fund invests in fixed income and equity securities that are denominated in currencies other than the United States dollar. Accordingly, the Fund’s assets may be affected favourably or unfavourably by fluctuations in currency rates. Therefore, the Fund is necessarily subject to foreign exchange risks. The assets of the Petroleum Fund to which the Fund had significant currency exposure at balance date, reported in United States Dollar equivalents, are set out in the following table: As at 31122013 USD EUR AUD GBP JPY Other Currencies Total Cash and cash equivalents 47,225,621 10,131,782 1,826,965 3,343,558 2,367,857 5,289,322 70,185,105 Equity securities 2,913,563,696 668,865,807 162,180,483 496,089,872 468,696,730 623,955,974 5,333,352,562 Interest bearing securities 8,112,364,538 444,651,310 145,008,543 146,555,355 136,010,191 586,562,474 9,571,152,411 Receivables 3,900,335 2,848,135 459,382 1,281,558 446,234 2,176,623 11,112,267 Payables 2,327,814 8,623,945 - 36,116 13,147,595 9,741,593 33,877,063 Total physical exposure 11,074,726,376 1,117,873,089 309,475,373 647,234,227 594,373,417 1,208,242,800 14,951,925,282 Forward exchange contracts - buy foreign currency 6,314,652 - - - 12,990,124 9,441,116 28,745,892 - sell foreign currency 22,391,135 - - - 4,935,470 1,245,264 28,571,869 Total derivative exposure 16,076,483 - - - 8,054,654 8,195,852 174,023 Total net exposure 11,058,649,893 1,117,873,089 309,475,373 647,234,227 602,428,071 1,216,438,652 14,952,099,305 Exposure of Fund net assets 73.97

7.48 2.07

4.33 4.03

8.13 100

- 26 - Petroleum Fund of Timor-Leste Notes to the financial statements for the year ended 31 December 2013

12. Financial risk and management objectives and policies continued

c Market risk continued iii Currency risk continued As at 31122012 USD EUR AUD GBP JPY Other Currencies Total Cash and cash equivalents 51,798,633 1,188,297 999,083 2,077,287 1,868,318 2,952,671 60,884,289 Equity securities 1,597,055,893 365,700,839 114,973,957 305,523,070 260,955,141 390,519,028 3,034,727,928 Interest bearing securities 8,676,319,344 - - - - - 8,676,319,344 Receivables 1,923,694 994,919 338,187 2,165,112 341,917 713,871 6,477,700 Payables 2,726,118 - - 19,309 - 412,726 3,158,153 Total physical exposure 10,324,371,446 367,884,055 116,311,227 309,746,160 263,165,376 393,772,844 11,775,251,108 Forward exchange contracts - buy foreign currency 4,307,942 - - - - 340,772 4,648,714 - sell foreign currency 340,751 - - 1,321,927 2,888,555 - 4,551,233 Total derivative exposure 3,967,191 - - 1,321,927 2,888,555 340,772 97,481 Total net exposure 10,328,338,637 367,884,055 116,311,227 308,424,233 260,276,821 394,113,616 11,775,348,589 Exposure of Fund net assets 87.71

3.12 0.99

2.62 2.21

3.35 100

Summarised sensitivity analysis The Petroleum Fund is primarily exposed to the Euro, Australian Dollars, Pound Sterling and Japanese Yen. The following table details the Petroleum Funds sensitivity to a 10 increase and decrease in the United States Dollar against the relevant foreign currencies. 10 is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10 change in foreign currency rates. The sensitivity analysis includes cash and cash equivalents, interest receivable and qualifying instruments. A negative number below indicates a decrease in profit where the United States Dollar strengthens 10 against the relevant currency. For a 10 weakening of the United States Dollar against the relevant currency, there would be a comparable impact on the profit, and the balances below would be a positive. The analysis presumes that all other variables, in particular interest rates, remain constant. As at 31122013 USD As at 31122012 USD EUR impact 111,787,309 36,788,405 AUD impact 30,947,537 11,631,123 GBP impact 64,723,423 30,842,423 JPY impact 60,242,807 26,027,682 Other currencies impact 121,643,865 39,411,362 Total currencies impact 389,344,941 144,700,995 This is mainly attributable to the exposure outstanding on all relevant foreign currencies relating to cash and cash equivalents, interest receivable and qualifying instruments in the Petroleum Fund at the end of the reporting period. - 27 - Petroleum Fund of Timor-Leste Notes to the financial statements for the year ended 31 December 2013

12. Financial risk and management objectives and policies continued