✨ Financial Statements Notes
Notes to the financial statements (continued)
in New Zealand Dollars ($000's)
13 Financial instruments
Exposure to credit, interest rate, foreign currency, equity price and liquidity risks arises in the normal course of the Trust’s business. The Trust’s risk management policies and procedures for financial instruments are formally documented and approved by the Trustees in the Trust’s Statement of Investment Policies and Objectives ("SIPO").
Credit risk
The Trust’s SIPO stipulates value ranges that may be held in New Zealand equities, overseas equities, overseas fixed interest, New Zealand cash, hedge funds, global property and collateralised commodity futures. Within each of these investment sub-trusts there are maximum limits that can be invested within one investment group and with one investment manager. This diversified investment strategy reduces the credit risk exposure of the Trust.
The Trust makes loans only to entities that are well established and have demonstrated a robust ability to make regular repayments.
The SIPO states minimum credit ratings of investment bonds.
Liquidity risk
Liquidity risk represents the Trust’s ability to meet its contractual obligations. The Trust evaluates its liquidity measurements on an ongoing basis. In general, the Trust generates sufficient cash flows from its activities to meet its obligations arising from its financial liabilities.
Market risk
Market risk is the risk that changes in market prices, such as interest rates or equity prices, will affect the Trust’s profit or valuation of net assets. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
The risk is mitigated by the policies and procedures outlined in the Trust’s SIPO. These include diversification of the investment portfolio and prudent investment strategies.
Foreign currency risk
The Trust is exposed to foreign currency risk as a result of investment transactions entered into by fund managers in a currency other than the Trust’s functional currency, New Zealand dollars ($), which is the presentation currency of the Trust. It is Trust policy to have at least 90% of its overseas investments hedged to NZ dollars.
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NZ Gazette 2011, No 104
✨ LLM interpretation of page content
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BayTrust Financial Statements
(continued from previous page)
🏢 State Enterprises & InsuranceFinancial Statements, Revenue, Expenses, Grants, Investments, Financial Instruments, Credit Risk, Liquidity Risk, Market Risk, Foreign Currency Risk