Notes to the financial statements |

17. Financial instruments (continued)

(c) Financial instrument risks

Te Wānanga o Aotearoa has policies to manage risks associated with financial instruments. Te Wānanga o Aotearoa is risk averse and seeks to minimise exposure from its treasury activities. The policies do not allow any transactions that are speculative in nature to be entered into..

Market

risk

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates.

Te Wānanga o Aotearoa has only limited exposure to foreign currency risk. Te Wānanga o Aotearoa purchases library items and software licences from overseas which exposes it to currency risk.

Fair value interest rate risk

Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.

Investments issued at fixed rates of interest create exposure to fair value interest rate risk. Te Wānanga o Aotearoa does not actively manage its exposure to fair value interest rate risk.

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 issued at variable interest rates create exposure to cash flow interest rate risk..

Credit risk

Credit risk is the risk that a third party will default on its obligation to Te Wānanga o Aotearoa causing Te Wānanga o Aotearoa to incur a loss. Due to the timing of its cash inflows and outflows, Te Wānanga o Aotearoa invests surplus cash into term deposits which gives rise to credit risk.

In the normal course of business, Te Wānanga o Aotearoa is exposed to credit risk from cash and term deposits with banks, debtors and other receivables. For each of these, the maximum credit exposure is best represented by the carrying amount in the statement of financial position.

Te Wānanga o Aotearoa manages cashflow interest rate risk by ensuring that no more than 35% of total liquid funds are held with any one approved counter party. With the exception of tauira fees, Te Wānanga o Aotearoa trades only with recognised and creditworthy third parties. Receivable balances are monitored on an on-going basis with the result that Te Wānanga o Aotearoa exposure to bad debts is not significant as a result of the ability to withhold graduation from tauira who do not pay their fees. Receivables arise mainly from tauira fees. There are procedures in place to monitor or report the credit quality of receivables. Te Wānanga o Aotearoa has no significant concentrations of risk in relation to receivables as it has a large number of credit customers.

Te Wānanga o Aotearoa holds no collateral or other credit enhancements for financial instruments that give rise to credit risk.

Credit quality of financial assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to Standard and Poor’s credit ratings (if available) or to historical information about counterparty default rates. All instruments in this table have a loss allowance based on lifetime expected credit losses.