Annual Report 2005 - Publications Unit - The University of Western ...

THE UNIVERSITY OF WESTERN AUSTRALIANOTES TO THE FINANCIAL STATEMENTS31 DECEMBER 200546. Financial instruments(a) Financial risk managementThe University's principal financial instruments comprised cash, deposits, bonds, bank bills, shares and unit trusts which arepredominantly managed through the University's investment portfolios.The University's governing body, the Senate, is responsible for the management of key risks and, through the StrategicResources Committee, reviews and approves financial policies. The Investment Policy Statement sets out investing guidelinessuch as performance objectives; investment restrictions; performance benchmarks and monitoring; and the strategic benchmarkfor each pool. The Investment Policy Statement is independently reviewed and updated by an external consultant on a regularbasis to ensure it is appropriate for the overall investment objectives of the University.The activities of the University result in exposure to market risk, interest rate risk and credit risk.Market riskPrice riskThe University's investment pools are exposed to fluctuations in the prices of equity securities. The University's investmentpolicy provides strategies for the minimisation of price risk with the diversification of that risk through a number of investmentmanagers and ongoing monitoring to ensure there is no concentration of risk exposure in any one area.Foreign exchange riskForeign exchange risk arises due to overseas sources of income from the University's international offshore teachingprogrammes, foreign donors, foreign customers and foreign sourced supplies. The University's main exposure is to the US andSingapore dollars, and the UK pound. Currently the level of exposure is not significant.The University requires that, where possible, offshore transactions be contracted in Australian dollars and if this is not possible,that forward currency contracts be considered to manage the currency exposure. The University will only enter into a forwardcontract when there is an underlying actual exposure.Interest rate riskThe interest rate risk arises from interest-bearing assets. The University's investment policy provides strategies for minimisingthe impact from interest rate risk including the use of investment fluctuation reserves to spread the impact of fluctuations on theUniversity's cash flow.The University has no significant interest bearing liabilities.Credit riskThe University's Credit Control Policy is designed to ensure that credit facilities are only provided to customers with anappropriate credit history.The University's investment and cash transactions are restricted to high credit quality institutions.(b) Interest rate risk exposuresThe following table details the University's exposure to interest rate risk.2005 Consolidated Floating Fixed interest maturing/repricing inNon -interest 1 year 1 to 2 2 to 3 3 to 4 4 to 5 more than interest 2005rate or less years years years years 5 years bearing TotalNotes $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000Financial assetsCash and cash equivalents 21 25,840 10,040 - - - - - 89 35,969Receivables 22 - - - - - - - 38,959 38,959Other shares and units 26 - - - - - - - 5,306 5,306Unsecured loan advances 26 - 456 461 399 308 308 - 1,866 3,798Managed investment porfolios 26 45,316 1,360 3,339 2,756 2,278 2,887 2,260 363,319 423,515Total financial assets 71,156 11,856 3,800 3,155 2,586 3,195 2,260 409,539 507,547Weighted average interest rate 5.09% 5.60% 8.17% 7.41% 6.31% 4.67% 6.12%69