✨ Financial Statements Notes
THE WAIKATO COMMUNITY TRUST INCORPORATED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the year ended 31 March 2011
Market Risk
The Trust’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and equity prices.
There has been no change to the Trust’s exposure to market risks or in the manner it manages and measures the risk.
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 basis point 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 used are the same as in 2010 to reflect the continued 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 continued market volatility.
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NZ Gazette 2011, No 119
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Notes to Financial Statements of the Waikato Community Trust
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💰 Finance & RevenueFinancial Statements, Market Risk, Interest Rate Risk, Currency Risk, Fair Value, Cash Flow, Sensitivity Analysis