✨ Financial Statements Notes
THE WAIKATO COMMUNITY TRUST INCORPORATED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2012
16.3.3 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 or loss comprising New Zealand equities, global equities, direct property and infrastructure investments.
In determining the volatility factor for price risk the Trust has examined the average market return over the past 10 years for each of the investment classifications. Based on this, Trust Waikato has adopted the following volatility factors for price risk for the Trust’s investments: New Zealand equities 18%, global equities 23%, direct property 12% and infrastructure investments 10%.
The following table summarises the sensitivity of the Trust’s financial assets and liabilities to interest rate risk, foreign exchange risk and other price risk.
| Volatility Factor | Impact 2012 NZ$'000 | Volatility Factor | Impact 2011 NZ$'000 |
|---|---|---|---|
| Interest rate risk | 0.8% | 822 | 0.8% |
| Currency risk (including DFI *) | 14% | 2,929 | 14% |
| Price risk: | |||
| NZ Equities | 18% | 6,211 | 18% |
| Global Equities | 23% | 16,919 | 23% |
| Direct Property | 12% | 3,149 | 12% |
| Infrastructure | 10% | 2,043 | 10% |
| Total Risk | 31,472 |
*Derivative Financial Instruments
16.4 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.
The Trust’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash equivalents (note 8), other financial assets at fair value through profit or loss (note 10), trade and other receivables (note 9), the Sport Waikato loan (note 12), and the Database loan (note 13).
The Trust’s arrangements with fund managers limit the amount of credit exposure to any one institution. The Trust has processes in place to review the credit exposure and credit quality of funds prior to the funds being deposited with financial institutions.
Due to the timing of its cash inflows and outflows, the Trust invests surplus cash with registered banks. The Trust policy for term deposits requires that deposits are placed with financial institutions registered under the Reserve Bank of New Zealand Act 1989 that have an investment grade credit rating of AA- or higher from Standard and Poor’s.
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NZ Gazette 2012, No 97
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Notes to Financial Statements for The Waikato Community Trust Incorporated
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💰 Finance & RevenueFinancial Statements, Price Risk, Credit Risk, Investment Strategy, Waikato Community Trust