 |
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2004
NOTE 16: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(b) Interest Rate Risk Management
The Corporation enters into various types of interest rate contracts in managing its interest rate risk.
(i) Interest Rate Swaps
Under interest rate swaps, TASCORP agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to the agreed notional principal amounts. The operations of the economic entity are subject to the risk of interest rate fluctuations to the extent that there is a difference between the timing and amount of interest earning assets and the timing and amount of interest bearing liabilities that mature or re-price in specified periods. Interest rate swaps are held or issued for the purpose of managing this interest rate risk. A number of interest rate swaps have resulted in lump sum receipts or payments at the commencement of the swap; these receipts and payments are amortised over the life of the swap transaction and have been included in interest income or expense.
The remaining terms and notional principal amounts of the Corporation’s outstanding interest rate swap contracts at balance date are:
(ii) Forward Rate Agreements and Futures Contracts
Under a forward rate agreement the Corporation agrees to pay or receive the difference between the contract interest rate based on a notional principal sum and the prevailing rate on the nominated future date. These derivatives are used to manage risk in a similar way to the interest rate swaps, that is, to reduce volatility of interest payments for known exposures.
(iii) Interest Rate Options
Interest Rate Options are contracts that allow the holder of the option the right but not the obligation to purchase or sell a financial instrument at a specified price and within a specified period. At balance date, the only options outstanding were those related to client lending activities. As a matter of policy, the impact of all options provided to clients is normally neutralised by purchasing the same option in the financial markets. The premiums received (paid) for interest rate options purchased and sold are included in the Statement of Financial Position. At balance date, unamortised premiums are listed below.
Exposure to interest rate risk, repricing maturities and the effective interest rates on financial instruments at balance date are:
Discounted securities held and issued are treated as fixed rate financial assets and liabilities respectively.
Exposure to interest rate risk, repricing maturities and the effective interest rates on financial instruments at balance date are:
Discounted securities held and issued are treated as fixed rate financial assets and liabilities respectively.
|
