THE WAIKATO COMMUNITY TRUST INCORPORATED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

For the year ended 31 March 2010

Fair value interest rate risk
Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Trust’s exposure to fair value interest rate risk is limited to its investments in New Zealand fixed interest and cash and global fixed interest funds included in financial assets at fair value through profit or loss category in the Balance Sheet (see note 10).

A 300 basis point increase or 100 basis point decrease is used when reporting interest rate risk, as it represents a reasonable assessment of the possible change in interest rates.

Cash flow interest rate risk
Cash flow interest rate risk is the risk that the cash flows from a financial instrument will fluctuate because of changes in market interest rates. Investments issued at variable interest rates expose the Trust to cash flow interest rate risk.

A 300 basis point increase or 100 decrease is used when reporting interest rate risk, as it represents a reasonable assessment of the possible change in interest rates.

The Trust’s exposure to interest rate risk for fair value and cash flow interest rate risk on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

Foreign exchange risk arises from transactions and recognised assets that are denominated in a currency that is not the Trust’s functional currency. This arises from investments in enhanced passive global equities and global fixed interest funds included in financial assets held at fair value through profit or loss category in the Balance Sheet (refer to note 10) and derivative financial instruments. The table below details the Trust’s sensitivity to a 10% increase and 25% decrease in the New Zealand dollar against the relevant foreign currencies. 10% and 25% are the sensitivity rates used as they represent a reasonable assessment of the possible changes in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% and 25% change in foreign currency rates.

The sensitivity rates differ from the previous year to reflect the volatility in the international currency and financial markets that have been experienced over the past year. The disclosures adopted provide a more accurate measurement for the movement in the future, due to current market volatility.

Price Risk
The Trust is exposed to price risk. This arises from investments held by the Trust and classified as financial assets at fair value through profit and loss.

The table below details the Trust’s sensitivity to a 30% increase and 10% decrease in the price risk. The sensitivity rates differ from the previous year to reflect the volatility in the international currency and financial markets that have been experienced over the past year. The disclosures adopted provide a more accurate measurement for the movement in the future, due to current market volatility.

Credit Risk Management
Credit risk is the risk that a third party will default on its obligation to the Trust, causing the Trust to incur a loss.

Due to the timing of its cash inflows and outflows, the Trust invests surplus cash with registered banks. The Trust’s investment policy limits the amount of credit exposure to any one institution.