LONDON STOCK EXCHANGE GROUP PLC ANNUAL

Market Risk

Market risk – foreign exchange risk Risk description Risk management approach The Group operates globally with primary centres in the UK, Europe and North America. It also has growing and strategically important businesses in Asia. The Group’s principal currencies of operation are sterling, US dollars, and the euro. The Group is exposed to transactional foreign exchange risk and translational risk. Transactional risk arises when we buy or sell goods or services in a currency other than our entities’ functional currencies. We may be exposed to movements in that currency. Translational risk arises from the translation of balances recorded in an entity’s functional currency into the Group’s reporting currency for the purpose of statutory reporting. Transactional foreign exchange risk may present itself in the payment of intragroup transactions or when interest obligations, which are in a different currency, are due. However, both of these operations play their part in controlling the level of translational foreign exchange exposure the Group faces. Transactional foreign exchange risk may also arise when investing in, or divesting from, operations denominated in currencies other than sterling. In addition, the Group has some contracts/ cash flow profiles with a foreign exchange component that could trigger embedded derivative recognition and, as such, fair value accounting treatment. Translational risk The Group manages its translational risk, where possible, by matching the currency of its debt to the currency of its earnings, to make sure certain key financial metrics are protected from material foreign exchange rate volatility. The Group also seeks to balance the currency of its assets with its liabilities. In order to mitigate the impact of unfavourable currency exchange rate movements on earnings and net assets, non-sterling cash earnings are centralised and applied to debt and interest payments in the same currency. Where required, currency of debt is re-balanced using cross-currency interest rate swaps to better match the currency of debt to the overall currency of earnings. A material proportion of the Group's debt is held in or swapped into euros and US dollars (see the table showing the currency of borrowings in note 16.1). A proportion of the euro denominated debt and cross-currency interest rate swaps provide a hedge against the Group’s net investmen