Entire Document - Chris Hani District Municipality

47.6 Market RiskThe municipality’s activities expose it primarily to the financial risks of changes ininterest rates (see Note 47.9 below). No formal policy exists to hedge volatilities inthe interest rate market.There has been no change to the municipality’s exposure to market risks or themanner in which it manages and measures the risk.CHRIS HANI DISTRICT MUNICIPALITY ANNUAL REPORT 2011 / 201247.6.1 Foreign Currency Risk ManagementThe municipality’s activities do not expose it to the financial risks of foreign currencyand therefore has no formal policy to hedge volatilities in the interest rate market.47.6.2 Interest Rate Risk ManagementInterest Rate Risk is defined as the risk that the fair value or future cash flowsassociated with a financial instrument will fluctuate in amount as a result of marketinterest changes.Potential concentrations of interest rate risk consist mainly of variable rate depositinvestments, long-term receivables, other debtors, bank and cash balances.The municipality limits its counterparty exposures from its money market investmentoperations by only dealing with well-established financial institutions of high creditstanding. No investment with a tenure exceeding twelve months shall be madewithout consultation with the investment committee.Consumer Debtors comprise of a large number of consumers, dispersed acrossdifferent industries and geographical areas. Ongoing credit evaluations are performedon the financial condition of these debtors. Consumer debtors are presented net ofa provision for impairment.In the case of debtors whose accounts become in arrears, it is endeavoured to collectsuch accounts by “levying of penalty charges”, “demand for payment”, “restriction ofservices” and, as a last resort, “handed over for collection”, whichever procedure isapplicable in terms of Council’s Credit Control and Debt Collection Policy.Long-term Receivables and Other Debtors are individually evaluated annually atbalance Sheet date for impairment or discounting. A report on the various categoriesof debtors is drafted to substantiate such evaluation and subsequent impairment /discounting, where applicable.198