Procedures

Foreign Exchange Risk - Procedures

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1. Purpose and Objectives

These procedures outline general regulations for the management and administration of foreign exchange risk.

2. Definitions, Terms, Acronyms

Foreign Exchange Risk - The risk that the University’s operations will be affected by changes in currency exchange rates.

Foreign Currency - foreign currency is all currencies other than the Australian Dollar (AUD).

Forward Exchange Contract (FEC) - An agreement between two parties to exchange a specified amount of one currency for another currency at a specified foreign exchange rate on a future date.

Foreign Exchange Hedge - forward exchange contract.

Foreign Exchange Rate - The price at which one currency can be bought with or sold for another currency.

3. Procedures Scope/Coverage

These procedures apply to all foreign currency transactions to which the University is exposed.

4. Procedures Statement

The University manages foreign exchange risk in accordance with Statutory Bodies Financial Arrangements Act 1982 and Accounting Standard AASB 139 Financial Instruments.

5. Foreign Exchange Risk Management

5.1 Internal Hedging Scheme

5.11 General provisions

Each known foreign currency commitment which is more than AUD $500,000 and due in less than 12 months may be managed utilising the University's Internal Hedging Scheme (IHS).

The IHS provides budget holders a means by which future foreign currency rates can be fixed/locked so as to achieve budget certainty. To this end, approved transactions under the IHS will not be subject to foreign currency fluctuations.

The Treasury Unit will maintain a record of all approved IHS transactions.

Applications to partake in the IHS will be made in the format prescribed by the Treasury Unit.

The requesting operational unit must nominate a primary and secondary contact prior to establishing a hedge. The primary contact will be responsible for all matters in relation to the hedge and ensuring the hedge is settled in accordance with the prescribed terms. As a contingency, this role will revert to the secondary contact.

Once a payment is bound to a hedge, that hedge is deemed irrevocable and cannot be cancelled.

The Treasury Unit may terminate a hedge where it becomes known that it is no longer effective or void.

5.1.2 When to hedge

Hedging will be used as a means of ensuring budget certainty only. That is, to determine, with assurance, the fixed AUD amount of foreign currency payable or receivable within a given budget period.

Personal opinions or market speculation regarding the future direction of a particular exchange rate should not determine if a currency exposure should be hedged.

The decision to hedge is always at the discretion of the operational unit. The Treasury Unit will not speculate on foreign currency forecasts or provide general recommendations in resolving whether to enter into a hedge arrangement.

5.1.3 Extending a hedge beyond settlement date

A hedge may be extended by up to two months of settlement date.

Where a hedge has not settled within this period it will settle automatically once the two months have elapsed.

Should an operational unit wish to extend a hedge beyond two months of the settlement date, a new hedging arrangement must be applied for and the existing hedge must be 'closed-out'.

FX gains and losses upon settlement will be reflected in the operational unit's account.

5.1.4 Changes and termination of internal hedges

Where it becomes know that a hedged commitment:

  • no longer exists;
  • has changed in such a way that either the amount or date of payment are no longer relevant; or
  • any other change though would affect the University in its ability to fulfil its obligations at settlement;

the hedge commitment will be deemed no longer effective and the Treasury Unit must be notified immediately.

All foreign exchange gains or losses incurred as a result of changes to hedge or failure to fulfil settlement, will be reflected in the operational unit's accounts. This is held regardless of cause.

5.2 External hedging

Notwithstanding any other provision in this policy, the Treasury Unit may enter into a Forward Exchange Contract (FEC) to moderate the University's foreign exchange exposure on a general/corporate level.

The University will not enter into an FEC where the expected exposure will take place at a time greater than 12 months

The Treasury Unit within FBS will be notified where an operational unit anticipates a foreign currency commitment greater to AUD $5,000,000 within a period of 12 months.

All forward exchange contracts must be approved by the University's Chief Financial Officer.

All foreign currency forward contracts and option contracts are to be entered into only with banks on the approved foreign exchange counterparty list below.

As at 30 June 2011:

Counterparty

Financial Institution

 

Rating Range

Long Term S&P

Total Exposure

Limit

$

Daily Settlement

Limit

$

ANZ Banking Group

AA-

25 million

5 million

Commonwealth Bank

AA-

25 million

5 million

National Australia Bank

AA

25 million

5 million

Westpac Banking Corporation

AA-

25 million

5 million

Bank of Western Australia

A+

10 million

2 million

Macquarie Bank

A

10 million

2 million

St George Bank

A

10 million

2 million

6. Accounting for Forward Exchange Contracts

6.1 IHS hedged transactions

All gains and losses, regardless of cause, will be realised in the requesting operational unit's account.  The operational unit will nominate an account prior to establishing a hedge.

6.2 External hedges

All gains and losses in relation to centrally-managed hedges will be realised in central accounts.

Custodians
Chief Financial Officer
Mr Andrew Betts

Forms

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Foreign Currency Hedge Scheme Application - Form

Foreign Currency Hedge Scheme Application - Form

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Description: 

Use this form to apply for a foreign exchange hedge.

Custodians
Chief Financial Officer
Mr Andrew Betts
Custodians
Chief Financial Officer
Mr Andrew Betts
Custodians
Chief Financial Officer
Mr Andrew Betts