✨ Financial Risk Analysis
Market Risk
Market Risk is the risk that the fair value of future cash flows from financial assets will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and market prices. Market risk is managed and monitored using sensitivity analysis and minimised by ensuring that all investment activities are undertaken in accordance with established mandate limits and the investment strategies set out in the Trust’s SIPO.
Interest Rate Risk
Interest Rate Risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial assets. The Trust’s investment in global bonds is held in a pooled fund. As such movements in interest rates will be reflected in each pooled fund’s fair value asset pricing. NZ Bonds are held in segregated accounts. The exposure to movement in the fair value of the Trust’s bond portfolios is discussed in the commentary on Price Risk.
The Trust’s cheque and call accounts are interest bearing. Any movement in interest rates on these accounts is minimal and is not considered to be material.
Currency Risk
Currency Risk is the risk that the fair value of, or future cash flows from financial assets will fluctuate due to changes in foreign currency exchange rates. All investments denominated in foreign currencies are fully hedged back to the New Zealand dollar on a monthly basis for 30 day periods. This effectively removes the exposure to currency risk.
The timing of the implementation of hedging contracts at month end may result in small parcels of securities being unhedged. These unhedged securities, when they occur, are not considered material, and will have minimal impact on the fair value of or future cash flows from the Trust’s financial assets.
At balance date the Trust’s exposure to currency risk was as follows:
| 2009 | 2008 | |
|---|---|---|
| $'000 | $'000 | |
| Foreign currency denominated financial assets | 564,559 | 716,429 |
| Less foreign currency contracts (Overhedged) | (566,660) | (707,842) |
| Unhedged currency exposure at 31 March | (2,101) | 8,587 |
| | | |
| USA and Canada | (1,141) | 4,551 |
| United Kingdom and Europe | (618) | 2,883 |
| Japan and Far East | (342) | 1,153 |
| (Overhedged) unhedged currency exposure at 31 March | (2,101) | 8,587 |
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NZ Gazette 2009, No 125
✨ LLM interpretation of page content
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Financial Assets and Liabilities
(continued from previous page)
🏢 State Enterprises & InsuranceFinancial Assets, Financial Liabilities, Trust, Cash, Managed Funds, Investment Portfolio, SIPO, Global Compact, Fund Managers
🏢 Market Risk Analysis
🏢 State Enterprises & InsuranceMarket Risk, Financial Assets, Cash Flows, Investment Strategies, SIPO
🏢 Interest Rate Risk Analysis
🏢 State Enterprises & InsuranceInterest Rate Risk, Financial Assets, Cash Flows, Global Bonds, NZ Bonds, Price Risk
🏢 Currency Risk Analysis
🏢 State Enterprises & InsuranceCurrency Risk, Financial Assets, Cash Flows, Foreign Currency, Hedging, Unhedged Exposure