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Financial Instruments | 12 Months Ended
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Dec. 31, 2017
Disclosure Of Financial Instruments [Abstract] |
Financial Instruments | 16. Financial instruments Fair value of financial assets and liabilities The fair value of the financial assets and liabilities is included at the amount at which an instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation or sale. The following methods and assumptions were used to estimate the fair values: Cash, cash equivalents, short-term deposits, other receivables, trade payables and other payables approximate their carrying amounts largely due to the short-term maturities of these instruments. Market Risk Market risk arises from our exposure to fluctuation in interest rates and currency exchange rates. These risks are managed by maintaining an appropriate mix of cash deposits in the two main currencies we operate in, placed with a variety of financial institutions for varying periods according to expected liquidity requirements. 16. Financial instruments (continued) Interest Rate Risk As of December 31, 2017, we had cash and cash equivalents of £86.7 million. As of December 31, 2016, we had cash and cash equivalents of £20.0 million. Our exposure to interest rate sensitivity is impacted primarily by changes in the underlying U.K. bank interest rates. Our surplus cash and cash equivalents are invested in interest-bearing accounts and certificates of deposit from time to time which earn interest at fixed or variable rates based on the terms agreed for each account. We have not entered into investments for trading or speculative purposes. Financial assets subject to fixed or variable interest rates are as follows:
|  | 2017 |  |  | 2016 |
|  | (in thousands) |
|  | Carrying amount |  |  | Carrying amount |
|  | £ |  |  | £ |
Financial assets at fixed rates |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 51,745 |  |  |  | 5,000 |
Financial assets at variable rates |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 13,708 |  |  |  | 14,433 |
An increase in the U.K. bank interest rates by 0.5 percentage points would increase the net annual interest income applicable to the cash and cash equivalents by £327,261 (2016: £97,165). Currency Risk Our functional currency is the U.K. pound sterling, and our transactions are commonly denominated in that currency. However, we incur a portion of expenses in other currencies, primarily U.S. dollars, and are exposed to the effects of this exchange rate. Since mid-2016, there has been significantly increased volatility in the exchange rate between the pound sterling and the U.S. dollar and an overall weakening of the pound sterling related to Britain’s exit from the European Union. Although we are based in the United Kingdom, we source our active pharmaceutical ingredient, or API, and other raw materials and our research and development, manufacturing, consulting and other services worldwide, including from the United States, the European Union and India. Any weakening of the pound sterling against the currencies of such other jurisdictions makes the purchase of such goods and services more expensive for us. We seek to minimize this exposure by maintaining currency cash balances at levels appropriate to meet foreseeable short to mid-term expenses in these other currencies. We do not use forward exchange contracts to manage exchange rate exposure. Financial assets and liabilities in foreign currencies are as follows:
|  | 2017 |  |  | 2016 |
|  | (in thousands) |
|  | Carrying amount |  |  | Carrying amount |
|  | £ |  |  | £ |
Financial assets |  |  |  |  |  |  |  |
Prepayments, accrued income and other receivables |  |  | 2,656 |  |  |  | 3,068 |
Current income tax receivable |  |  | 18 |  |  |  | 54 |
Cash and cash equivalents |  |  | 72,645 |  |  |  | 251 |
Financial liabilities |  |  |  |  |  |  |  |
Trade payables |  |  | 148 |  |  |  | 126 |
Payroll taxes and social security |  |  | 3 |  |  |  | — |
Accrued expenditure |  |  | 468 |  |  |  | 167 |
16. Financial instruments (continued) A 1% increase in exchange rates would reduce the carrying value of net financial assets and liabilities in foreign currencies by £747,004 (2016: £30,807). Credit risk We actively manage our cash and cash equivalents across a number of banks and have deposits with different maturity dates. The Company monitors the credit rating of those banks.

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