27 Financial risk management
The Group is exposed to a variety of financial risks arising from the Group’s operations being principally market risk (including interest rate risk and foreign exchange risk), liquidity risk and credit risk.
The majority of the Group’s financial risk management is carried out by the Group’s treasury department. The policies for managing each of these risks and their impact on the results for the year are summarised below.
Market risk
a) Interest rate risk
Interest rate risk comprises both cash flow and fair value risks. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Fair value interest rate risk is the risk that the fair value of financial instruments will fluctuate as a result of changes in market interest rates
The Group’s interest rate risk arises from borrowings issued at floating rates that expose the Group to cash flow interest rate risk, whereas borrowings issued at fixed interest rates expose the Group to fair value interest rate risk. Bank debt is typically issued at floating rates linked to LIBOR. The Group is aware that LIBOR will be discontinued after 2021 and is actively monitoring the output from the various working groups on LIBOR reform. The Group will also be carrying out a review on whether the fall-back provision across its existing facilities (including bank debt, floating rate notes and interest rate swaps) is adequate, and look to implement changes as and when it is appropriate. Bond debt and other capital market debt is generally issued at fixed rates.
It is Group policy, and often a requirement of the Group’s lenders, to eliminate substantially all exposure to interest rate fluctuations by using floating to fixed interest rate swaps (referred to as allocated swaps) in order to establish certainty over cash flows. Such allocated swaps have the economic effect of converting borrowings from floating to fixed rates. The Group also holds interest rate swaps that are not actively used as a hedge against borrowings (referred to as unallocated swaps).
As a consequence, the Group is exposed to market price risk in respect of the fair value of its fixed rate interest rate swaps. Additional information on the Group’s interest rate swaps is provided in the financial review on page 34
The table below shows the effects of allocated swaps on the borrowings profile of the Group:
Group policy is to target interest rate protection within the range of 75 per cent to 100 per cent
The weighted average rate for allocated swaps currently effective is 1.97 per cent (2018: 1.89 per cent).
The nominal value of unallocated swaps, which are excluded from the above table, is £483.4 million (2018: £566.7 million). Their fair value of £166.7 million (2018: £184.4 million) is included as a liability in the balance sheet. The term of each unallocated swap runs until its respective maturity date, the last of which runs until 2037, but each also has a mandatory or discretionary break clause which, unless otherwise agreed, would lead to earlier termination between 2020 and 2023. In the event of an early termination of an unallocated swap, a settlement amount is immediately payable by the Group.
The impact on the total fair value of derivatives liability and the inverse to change in fair value of financial instruments (allocated and unallocated swaps) of a 50 basis point increase in the level of interest rates would be a credit to the income statement and increase in equity of £67.8 million (2018: £78.8 million). The approximate impact of a 50-basis point reduction in the level of interest rates would be a charge to the income statement and decrease in equity of £67.8 million (2018: £78.8 million). In practice, a parallel shift in the yield curve is highly unlikely. However, the above sensitivity analysis is a reasonable illustration of the possible effect from the changes in slope and shifts in the yield curve that may occur. Where the fixed rate derivative financial instruments are matched by floating rate debt, the overall effect on Group cash flow of such a movement would be very small.
Table:
 |  | 2019 |  | 2018
£m | Fixed | Floating | Fixed | Floating
Borrowings (nominal value)1 | 2,951.8 | 1,667.3 | 2,998.3 | 1,884.1
Derivative impact (nominal value of allocated swaps) | 1,073.5 | (1,073.5) | 1,112.6 | (1,112.6)
Net borrowings profile | 4,025.3 | 593.8 | 4,110.9 | 771.5
Interest rate protection |  | 87.1% |  | 84.2%


Question: What does interest rate risk comprise of?
Answer: cash flow and fair value risks