✨ Financial Statements Notes
3838 No. 128
NEW ZEALAND GAZETTE
NOTES TO THE FINANCIAL STATEMENTS
19. FINANCIAL INSTRUMENTS
Currency and interest rate risk
Nature of activities and management policies with respect to financial instruments:
(a) Currency
The Corporation has exposure to foreign exchange risk as a result of offshore funding activities, and transactions denominated in foreign currencies, arising from normal trading activities.
Where exposures are certain, such as borrowings or capital commitments, it is the Corporation’s policy to hedge these risks as they arise.
The Corporation uses currency and interest rate swaps and forward foreign exchange contracts to manage these exposures.
Contract amounts of currency and interest rate swaps and foreign exchange contracts outstanding at balance date are as follows:
| June 1994 | |
|---|---|
| Currency and interest rate swaps | $000 |
| 1,148,123 | |
| Forward foreign exchange contracts | 147,547 |
The cash settlement requirements of the above instruments approximate the contract amounts shown above.
(b) Interest rate
The Corporation has a mixture of medium to long term borrowings that are used to fund ongoing activities. It is the Corporation’s policy to manage exposure to interest rate risk with the use of interest rate swaps, forward rate agreements, interest rate options and interest rate futures.
The notional principal or contract amounts of interest rate contracts outstanding at balance date are as follows:
| June 1994 | |
|---|---|
| Interest rate swaps | $000 |
| 609,634 | |
| Forward rate agreements | 198,000 |
| Interest rate options | 676,000 |
The cash settlement requirement of interest rate swaps is the net interest receivable/payable of $915,000 and for FRA’s the best approximation is the current market value which is $16,842.
The cash settlement requirement of interest rate options is the net market value of the options, at strike date, if the option is exercised. Based on current market rates at 30 June 1994 this would be $805,722.
(c) Revenue - Electricity hedge contracts
The Corporation, as part of the energy supply contracts, has entered into electricity price hedges with customers for the period 1 July 1994 to 31 March 1995. Under these contracts the Corporation sells electricity forward at a fixed price (hedge price). Any difference on maturity between the hedged price and the spot price is settled between the parties irrespective of how much electricity is supplied. If the spot price is greater than the hedge price, the Corporation must settle with the counter-party. Conversely if the spot price is less than the hedge price the counter-party must settle with the Corporation. It is not practicable to estimate the fair value of electricity hedge contracts as the secondary market for electricity price hedge products, namely seasonal hedge, monthly hedge and anytime hedge, was not active as at 30 June 1994. The contract amount of electricity price hedges at balance date amounted to $266.1 million. The Corporation’s Board has issued a policy to manage the Corporation’s exposure to electricity price risk by issuing a hedge limit of 25,000 Gwh in any one year. This is equivalent to approximately 80% of total electricity sales.
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VUW Te Waharoa —
NZ Gazette 1994, No 128
NZLII —
NZ Gazette 1994, No 128
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