Notes to the Financial Statements
Note 26: Financial Instruments
The University's activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The University has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.
Market risk
The effective interest rates on Investments range from 5.46% to 8.76% (2007 - 7.25% to 8.80%). There was a finance lease recognised in 2006 with an effective interest rate of 12.07% in 2008. (2007 - 12.07%).
There were no term loans for 2008 (2007 - none).
Fair Value Interest Rate Risk
The estimated fair value of the University's financial instruments are equivalent to their carrying amounts in the financial statements. The University's exposure to fair value interest rate risk is limited to its bank deposits which are held at fixed rates of interest, and a finance lease.
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 and borrowings issued at variable interest rates expose the University to cash flow interest rate risk.
The University holds a mixture of fixed rate and floating call rate deposits. At 31 December the University had $9.8m (2007 $5.4m) invested in variable rate deposits and the balance in fixed rate deposits.
Sensitivity analysis
As at 31 December 2008, if the call rate had been 100 basis points higher or lower, with all other variables held constant, the surplus/deficit for the year would have been as follows:
| University | | This Year | | Last Year |
| Instrument | � | +100bps | -100bps | � | +100bps | -100bps |
| | | $000 | $000 | | $000 | $000 |
| Variable rate deposits | | 98 | ( 98 ) | | 54 | ( 54 ) |
| |
| Consolidated | | This Year | | Last Year |
| Instrument | � | +100bps | -100bps | � | +100bps | -100bps |
| | | $000 | $000 | | $000 | $000 |
| Variable rate deposits | � | 99 | ( 99 ) | | 54 | ( 54 ) |
This movement is attributable to increased or decreased interest income on call investment accounts. The sensitivity is higher in 2008 than 2007 because of the increased balance held on call.
Currency Risk
Currency risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate due to changes in foreign exchange rates. The University holds cash in a US dollar account. Fluctuations in foreign currency exchange rates give rise to currency risk.
The University also purchases goods and capital equipment and sells services in foreign currencies.
The University manages its exposure to this foreign exchange rate risk through forward foreign exchange contracts, interest rate swaps and cross currency swaps. At balance date the University did not have any of these arrangements in place.
At the 31 December 2008 the University held receivables and payables in US dollars (USD), Australian dollars (AUD), Chinese yuan (CNY) and Euros (EUR) as well as holding foreign currency in US dollars.
Sensitivity analysis
As at 31 December 2008, if the NZ dollar had weakened/strengthened 10% against the USD, with all other variables held constant, the surplus for the year would have been as follows:
| University | | This Year | | Last Year |
| Instruments held in USD | � | +10% | -10% | � | +10% | -10% |
| | | $000 | $000 | | $000 | $000 |
| Creditors | | 4 | ( 5 ) | | 15 | ( 18 ) |
| Debtors | | ( 1 ) | 1 | | ( 3 ) | 4 |
| US dollar account | | ( 122 ) | 149 | | ( 378 ) | 462 |
| |
| Consolidated | | This Year | | Last Year |
| Instruments held in USD | � | +10% | -10% | � | +10% | -10% |
| | | $000 | $000 | | $000 | $000 |
| Creditors | | 6 | ( 8 ) | | 15 | ( 18 ) |
| Debtors | | ( 2 ) | 2 | | ( 5 ) | 6 |
| US dollar account | | ( 122 ) | 149 | | ( 378 ) | 462 |
This movement is attributable to foreign exchange gains/losses on translation of US denominated creditors, debtors and bank balances.
The USD currency risk represented in the above creditors figure is not representative of the inherent risk as the balance at year end is not reflective of the transactions undertaken by the University in USD.
Payables in USD during 2008 totalled $2.34 m (2007 $3.24 m). The sensitivity is lower in 2008 than 2007 because the University was holding less funds in its USD account, 2008 USD774k (2007 USD3,199k).
As at 31 December 2008, if the NZ dollar had weakened/strengthened 10% against the EUR, with all other variables held constant, the surplus for the year would have been as follows:
| University and Consolidated | | This Year | | Last Year |
| Instruments held in EUR | � | +10% | -10% | � | +10% | -10% |
| | | $000 | $000 | | $000 | $000 |
| Creditors | | 1 | ( 1 ) | | 1 | ( 1 ) |
| Debtors | | ( 6 ) | 8 | | ( 8 ) | 10 |
This movement is attributable to foreign exchange gains/losses on translation of Euro denominated creditors and debtors.
As at 31 December 2008, if the NZ dollar had weakened/strengthened 10% against the AUD, with all other variables held constant, the surplus for the year would have been as follows:
| University and Consolidated | | This Year | | Last Year |
| Instruments held in AUD | � | +10% | -10% | � | +10% | -10% |
| | | $000 | $000 | | $000 | $000 |
| Creditors | | 6 | ( 7 ) | | 4 | ( 5 ) |
This movement is attributable to foreign exchange gains/losses on translation of AUD denominated creditors.
As at 31 December 2008, if the NZ dollar had weakened/strengthened 10% against the CNY, with all other variables held constant, the surplus for the year would have been as follows:
| University and Consolidated | | This Year | | Last Year |
| Instruments held in CNY | � | +10% | -10% | � | +10% | -10% |
| | | $000 | $000 | | $000 | $000 |
| Debtors | | ( 30 ) | 36 | | - | - |
This movement is attributable to foreign exchange gains/losses on translation of CNY denominated debtors.
Credit Risk
Credit risk is the risk that a third party will default on its obligation to the University causing the University to incur a loss.
Financial instruments which potentially subject the University to credit risk principally consist of bank balances and accounts receivable.
Credit risk in respect of Bank and Short Term Deposits is reduced by spreading deposits over major New Zealand registered trading banks. Receivables are unsecured, but are subject to credit control.
No collateral is held.
Liquidity Risk
Liquidity risk is the risk that the University will encounter difficulty raising liquid funds to meet commitments as they fall due. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities.
The University is required to maintain combined cash reserves and committed credit lines available to a minimum of $7 million at all times.
The table below analyses the University's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.
| University | | Less than 6 months | | Between 6 months and 1 year | | Between 1 and 5 years |
| | | $000 | | $000 | | $000 |
| 2008 |
| Creditors and other payables | | 9,656 | | 0 | | 0 |
| Borrowings | | 122 | | 122 | | 715 |
| Current Employee Entitlements | | 4,486 | | 798 | | 0 |
| |
| 2007 |
| Creditors and other payables | | 12,244 | | 0 | | 0 |
| Borrowings | | 162 | | 138 | | 795 |
| Current Employee Entitlements | | 3,338 | | 586 | | 0 |
| |
| |
| Consolidated | | Less than 6 months | | Between 6 months and 1 year | | Between 1 and 5 years |
| | | $000 | | $000 | | $000 |
| 2008 |
| Creditors and other payables | | 10,106 | | 0 | | 0 |
| Borrowings | | 122 | | 122 | | 715 |
| Current Employee Entitlements | | 4,486 | | 798 | | 0 |
| |
| 2007 |
| Creditors and other payables | | 12,847 | | 0 | | 0 |
| Borrowings | | 162 | | 138 | | 795 |
| Current Employee Entitlements | | 3,338 | | 586 | | 0 |
