Annual report 2012
Financial instrument risks
Te Wānanga o Aotearoa has policies to manage risks associated with financial instruments. Te Wānanga o Aotearoa is
risk averse and seeks to minimise exposure from its treasury activities. The policies do not allow any transactions that
are speculative in nature to be entered into.
(a)
Market Risk
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes
in foreign exchange rates.
Te Wānanga o Aotearoa has only limited exposure to foreign currency risk. Te Wānanga o Aotearoa purchases library
items from overseas and also attends overseas conferences which exposes it to currency risk.
Where tranactions in foreign currencies are forecast that are material to Te Wānanga o Aotearoa, forward exchange
contracts are entered into to diminish the risk of fluctuations in exchange rates.
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. Borrowings and investments issued at fixed rates of interest create exposure to fair value interest rate
risk. Te Wānanga o Aotearoa does not actively manage its exposure to fair value interest rate risk.
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. Borrowings and investments issued at variable interest rates create exposure to cash flow
interest rate risk.
(b)
Credit risk
Credit risk is the risk that a third party will default on its obligation to Te Wānanga o Aotearoa causing Te Wānanga o
Aotearoa to incur a loss. Due to the timing of its cash inflows and outflows, Te Wānanga o Aotearoa invests surplus
cash into term deposits and government bonds which gives rise to credit risk.
In the normal course of business, Te Wānanga o Aotearoa is exposed to credit risk from cash and term deposits with
banks, debtors and other receivables and government bonds. For each of these, the maximum credit exposure is best
represented by the carrying amount in the statement of financial position.
With the exception of tauira fees, the group trades only with recognised and creditworthy third parties.
Receivable balances are monitored on an ongoing basis with the result that the group’s exposure to bad debts is not
significant as a result of the ability to withhold graduation from tauira who do not pay their fees.
Te Wānanga o Aotearoa holds no collateral or other credit enhancements for financial instruments that give rise to
credit risk.
Credit quality of financial assets
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to Standard
and Poor’s credit ratings (if available) or to historical information about counterparty default rates.
Group Group Parent Parent
2012 2011 2012 2011
$’000 $’000 $’000 $’000
Counterparties with credit ratings
Cash at bank and term deposits
AA-
58,418 59,690 53,915 55,035
Total cash at bank and term deposits
58,418
59,690
53,915
55,035
Counterparties without credit ratings
Debtors and other receivables
Existing counterparty with no defaults in the past
3,248
2,672 2,938 2,476
Total debtors and other receivables
3,248
2,672
2,938
2,476
Total financial instrument assets
61,666
62,362
56,853
57,511
103
