MetService - Annual Report 2011 - Crown Ownership Monitoring Unit

Financial statements
Notes to the financial statements for the year ended 30 June 2011 (cont.)
26. financial instruments (continued)
Financial risk management objectives
The Group seeks to minimise the effects of foreign currency exchange risks by using derivative financial instruments to hedge these risk exposures.
The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on foreign
currency exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of
excess liquidity. Compliance with policies and exposure limits is reviewed by management on a continuous basis. The Group does not enter into or
trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk
There has been no change during the year to the Group’s exposure to market risks or the manner in which it manages and measures the risk.
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuation arise. Exchange rate
exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
The carrying amounts of the foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
Liabilities 2011 Liabilities 2010 Assets 2011 Assets 2010
$000s $000s $000s $000s
Group
US Dollars 78 63 284 196
British Pounds 23 86 189 197
Euro – 4 303 429
Australian Dollars 33 32 241 173
134 185 1,017 995
Parent
US Dollars – – – –
British Pounds – – – –
Euro – – – –
Australian Dollars – – – –
– – – –
Foreign currency sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to exchange rate at the balance sheet date. This analysis is based on
the closing foreign currency denominated monetary assets and monetary liabilities at the reporting date.
If exchange rates had been 10% higher and all other variables were held constant, Group profit would have decreased by $80,000 (2010: $70,000).
If exchange rates had been 10% lower and all other variables were held constant, Group profit would have increased by $98,000 (2010: $92,000).
Interest rate risk management
The Parent and Group are exposed to interest rate risk as entities in the Group borrow funds at fixed interest rates. The risk is managed by the
Group by maintaining an appropriate level of debt.
The Parent and Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of
this note.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
Financial instruments which potentially subject the Group to credit risk principally consist of bank transactions and deposits, accounts receivable
and sundry accounts receivable. The Group has a credit policy which is used to manage its exposure to credit risk. As part of this policy, limits on
exposures have been set and are monitored on a regular basis.
In the normal course of business amounts due from the Ministry of Transport represent a significant account receivable, and a concentration of
credit risk. However the Directors do not expect any loss from non-performance of this counterparty.
48 Meteorological Service of New Zealand Ltd Annual Report 2011