✨ Financial Statements Notes
Otago Community Trust
Notes to the financial statements
For the year ended 31 March 2014
in New Zealand Dollars ($000’s)
3. 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 Statement of Investment Performance Objectives.
3.1 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. 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 self managed cash and deposit accounts are interest bearing. Any movement in interest rates on these accounts is minimal and is not considered to be material.
3.2 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.
At balance date the Trust’s exposure to currency risk was as follows:
| 2014 | 2013 | |
|---|---|---|
| Foreign currency denominated financial assets | 192,956 | 183,830 |
| Less foreign currency contracts | 190,611 | 182,092 |
| Total Unhedged Exposure at 31 March | 2,345 | 1,738 |
3.3 Pricing Risk
Pricing risk is the risk that the fair value of financial assets will increase or decrease as a result of changes in market prices, whether these changes are caused by factors specific to individual stocks or factors affecting all financial assets in the market. Price risks arise from the Trust’s investment portfolio (the Fund). As reported in the section on Significant Accounting Policies, the financial assets are valued at fair value as determined by reference to their quoted bid price at the reporting date, wherever this information is available.
Sensitivity to fluctuations in income for the Trust’s Fund arising from market risk are set out in the following tables provided by the Trust’s investment consultant, Russell Investment Group Limited.
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NZ Gazette 2014, No 85
✨ LLM interpretation of page content
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Otago Community Trust Financial Statements
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💰 Finance & RevenueFinancial Statements, Community Trusts, Trade payables, Financial instruments, Investments, Credit Risk, Liquidity Risk, Market Risk