Content Container 372587

1.

Where possible contracts should be negotiated in Australian Dollars (AUD), however, when it is operationally imperative to enter contracts to receive or pay amounts in foreign currency Treasury need to be advised via email to the email address corporatefinance@jcu.edu.au .

The email must include the contract and details of:

• The requestor
• The currency
• The timing of the forecast payments / receipts
• Reasons why the contract is denominated in foreign   currency.

2.

Treasury team will provide advice as to how foreign exchange risks can be managed to reduce the risk of foreign exchange (FX) losses to the University. The team will also provide the appropriate banking details for foreign currency payments.

Due to the potential approvals required, notification of foreign currency payments from JCU to an external payee must be received at least five business days in advance of the payment being due.

3.

For receipts:

United States Dollars (USD) amounts are to be deposited to the University USD foreign currency account

Great Brittan Pounds (GBP) amounts are to be deposited to the University GBP foreign currency account

All other currencies are to be deposited to the AUD general operating account.

4.

For payments:

Each quarter Treasury will prepare a forecast foreign currency cash flow for USD and GBP foreign currency using known commitments as per the purchasing system. A register of all open hedge arrangements will also be reported to each Finance Committee meeting.

Where sufficient funds are held in the payment currency account these balances will be utilised to make payments as and when due.

Where a shortfall in foreign currency is identified in the cash flow forecast an assessment of the Foreign Exchange Risk will be performed to determine if simple hedge contracts should be entered into. The risk assessment will include but not be limited to:

• The period between entering the commitment and   scheduled payment date
• The certainty of the payment obligation arising
• The value of the foreign currency transaction
• The portfolio of hedge arrangements in place at the   time the consideration is being made.

If there are insufficient foreign currency holdings, and a hedging transaction is deemed inappropriate, funds from the AUD operating account will be applied to make the contracted payment.

5.

All hedging requests are administered by Treasury and must be approved in advance in accordance with the University Financial Delegations Register.

Step

Action

1.

Once a foreign currency contract commitment is notified to Treasury a risk assessment will be performed and documented to determine the most appropriate way to manage inherent foreign exchange risks.

A foreign exchange risk may be identified for a budget item addressing multiple transactions OR a single transaction arising from a specific contract arrangement.

Foreign Exchange Risk Policy FMPM 840 restricts the total balance of foreign currency derivative transaction to AUD 10m. To ensure this limit is not exceeded ALL FX contracts MUST be administered by Treasury.

2.

For currency hedging Treasury will complete an internal  Foreign Currency Purchase Form using either the forecast foreign exchange budget spend OR the contract details provided by the contract owner.

The form will also provide an indication of the available hedged exchange rate in the time period required. If a hedging strategy is identified to make milestone payments in a contract or to match forecast cash flows in a budget for example the strategy for the full payment stream will be identified.

3.

Once the form is completed it will be provided to the Financial Delegate for approval. The register of open hedge contracts will be provided with each individual request to demonstrate the portfolio limit as per FMPM 840 is not breached.

4.

Upon approval by the Financial Delegate, Treasury will enter a transaction with a party as allowed in FMPM 840 to lock in the forward exchange rate until the future date(s) specified.  At the time the trade is confirmed the portfolio of hedging arrangements will be updated. The most common hedging arrangements are in major currencies such as, USD or GBP, but other currency arrangements can be negotiated after a cost-benefit analysis.

5.

Hedging contracts will be limited to a maximum 12 month duration. In cases, where a hedge has not been settled within the requested period, it will settle automatically at the maturity date.

If an operational unit wants to either extend a hedge beyond the initially requested period or put in place a contract for a period greater than 12 months, a request must be made to Treasury at least 30 days prior to the expiry in case of contracts up to 3 months and 60 days in advance for longer period contracts. Only one amendment can be made to each contract.

A new contract must be executed to reflect the amended terms and the existing hedge must be ‘closed out’.

All FX gains and losses incurred as a result of amendment will be borne by the requesting operational unit and met through existing budget allocations.

6.

Once the hedge is confirmed, the budget holder or contract owner as applicable will be notified of the hedge arrangement including the rate/s of exchange and date/s of settlement.

Once the hedge is committed it is deemed irrevocable and cannot be cancelled without economic consequence for the operational unit.

Foreign currency hedges will be reviewed by the Treasury team at each period end to enable accounting adjustments required in accordance with AASB 139, Financial Instruments. Resulting unrealised gains and losses, will be recognised in a corporate account. Upon settlement any realised gains and losses will be recognised in the relevant corporate accounts.

7.

Treasury must be informed as soon as an operational unit becomes aware of change in  circumstance that may impact hedge contract, for example where it requires:

• cessation
• to amend   amount, currency or date of payment
• amendment   due to any other change that would affect the University in its ability to fulfil its obligations at settlement.

Any 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.

8.

All operational units must adhere to FOREX Policies reflected in FMPM 840 and must not enter into any commitments, without consulting Treasury. Any breach of this procedure, FMPM 840 policy or other relevant internal and external policies and procedures will be dealt with in accordance with relevant JCU policies including the Code of Conduct.

Step

Action

1.

FMPM 840 Policy prohibits entering into contracts, agreements or arrangements that actively seek to mitigate foreign exchange risk by any area other than Treasury. Such actions are hedges, given that they lock in an exchange rate prior to the payment becoming due.

Arrangements that constitute a hedge under the policy are defined in AASB 139 as an asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that (a) exposes the entity to risk of changes in fair value or future cash flow and (b) designated as being hedged.

Treasury may use derivatives as a Hedging Instrument , AASB 139 (9) characterise derivatives with particular features that leverage the risk such as:

(a)   little or no cash outflow/inflows are required until maturity of the transactions;

(b)   no principal balance or other fixed amount is paid or received;

(c)   its value changes in response to the change in a specified interest rate, financial instrument prices or rates, credit ratings, foreign exchange rate etc.,

(d)   potential risk and rewards can be greater than the current outlays and

(e)   is settled at a future date.

2.

Treasury is responsible for:

(a)   ensuring derivatives meet the criteria of hedge accounting in accordance to the accounting standards;

(b)   ensuring hedge transactions are approved in accordance with FMPM 840, Foreign Exchange Risk Policy;

(c)   organising the hedging transaction ;

(d)   ensuring information relating to derivatives are recorded on a timely basis, is complete and accurate when entered into accounting system;

(e)   ongoing monitoring of derivative transactions to recognise and measure events affecting financial assertions;

(f)    formal periodic reconciliation of derivative transaction to recognise foreign exchange gains and losses by comparing the AUD amount, as converted at both the inception date and the settlement date;

(g)   documenting reconciliation and ensuring they are independently reviewed;

(h)   initiating cash payments and cash receipts at the time of settlement.

3.

In addition to the basic financial information, such as notional amount, Treasury must ensure:

(a)   initiation records identify the nature and purpose of individual transactions, and the right and obligations arising under each derivative contract.

(b)   the records identify the dealer, the person recording the transaction, the date and time of the transaction

(c)   counterparty banking details are correct and foreign exchange transactions are approved by the relevant Financial Delegate as outlined in the Financial Delegations Register prior to executing the transaction

(d)   the employee responsible for reconciling and accounting for foreign exchange transaction must not be responsible for settling that transaction

(e)   Approvals to enter transactions must be made by the DVC Services & Resources in accordance with the Financial Delegations Register.

4.

All derivative transactions must be recorded into the corporate accounting system administered by FaBS for record keeping, audit and reporting purposes and must be maintained to be able to produce the transaction report as required by senior management with the following information:

• Foreign Currency exchange   amount
• currency paid
• AUD equivalent amount;
• relevant Budget Exchange   Rate;
• counterparty;
• payment date;
• Foreign Exchange Rate;
• settlement date;
• cost of the transaction   (if any);
• current spot rate (if   different to rate at which the transaction is dealt);
• the reason for the   difference between the spot rate and the rate at which the transaction is   dealt;
• reason for the   transaction;
• person dealing the   transaction;
• person authorising the   transactions; and
• counterparty payment   details.

In addition, record must be kept of any foreign exchange transactions that are modified (e.g. changes to dates, amounts, or rates) or cancelled (e.g. as part of the foreign exchange register or foreign exchange system). This should include the cost of, and reasons for, any such modification or cancellation.

Treasury must ensure that any exceptions or variations from  the above authorised procedure for foreign exchange transactions is reported to an appropriate senior manager, who can review and provide guidance on any remedial action that should be undertaken.

Foreign exchange transactions may be subject to audit procedures performed by internal or external audit as part of either party’s annual audit plans.

Policy Sponsor

Vice Chancellor

Approval Authority

Vice Chancellor

Date for next review

16/12/2021

Version

Approval date

Implementation date

Details

Author

16-2

16/12/2016

20/12/2016

Procedure established

Director Financial & Business Services