FMPM 840 Foreign Exchange Risk Policy

Intent

To set out the requirements regarding approvals and compliance for managing foreign exchange risk.

Scope

This policy applies to those areas of the University engaged in Foreign Currency transactions that expose the University to Foreign Exchange Risk.  This includes the Financial and Business Services, the Library, Research and any other area that engages in Foreign Currency transactions.

Responsibilities

Definitions

Budget Exchange Rate

The exchange rate used for calculating the Australian dollar equivalent of Budgeted foreign currency exposures as supplied by Treasury and Corporate Finance team within Financial and Business Services Directorate.

Foreign Exchange Risk

Currency exchange rate, fluctuation risk that may impact University’s profitability.

Foreign Currency

Any currency other than the base (native) currency.

Forward Exchange Contract

A contract or an agreement to swap or exchange one currency for another currency at an agreed or specific date (for any date other than the spot rate).

Foreign Exchange Hedge

A binding transaction or a contract to limit exposure in the foreign currency exchange rate.

Foreign Exchange Rate

The rate at which the foreign currency can be exchanged.

Policy

Objective

The primary objective of managing foreign exchange risk is to mitigate the University’s exposure to transactions denominated in foreign currency.

Foreign Exchange Transaction Exposure

The primary sources of foreign exchange exposures are:

1. Foreign currency income associated with research grants.
2. Foreign currency income associated with student services.
3. Foreign currency expenditures associated with research grants.
4. General payments denominated in foreign currency.
5. Annual expenditure associated with the subscriptions and publications of the University library denominated in foreign currency.

Management of the risk

To reduce foreign exchange exposure arising out of offshore contracts, the University will seek to have contracts denominated in Australian dollars wherever possible.

Where it is not practical to have contracts denominated in Australian dollars foreign exchange risk will be managed by:

• University Foreign Exchange Bank Account

The University maintains accounts denominated in commonly required currencies.  Where the relevant accounts are held the University will receipt and pay foreign currency amounts into or from these accounts. Where balances required are budgeted or forecast to be in excess of foreign currency requirements the University may exchange sufficient cash into the required currency as soon as practicable, once the requirement is known, to provide budget certainty for the University.

Opening of additional foreign currency accounts is subject to the approval of the Deputy Vice Chancellor, Services & Resources and Queensland Treasury as per requirements under section 61A of the Statutory Bodies Financial Arrangements Act 1982 (Qld) (SBFA Act).

Additional foreign currency accounts will be reported to the Finance Committee.

Derivatives

The University may also enter into derivative transactions for specific purchases / commitments only and derivatives may only be entered into to hedge against foreign currency exchange rate risk. Speculative transactions are strictly not permitted.

The type of derivatives which may be entered into is restricted to arrangements that limit exchange rate exposure known as caps and collars, and may include futures, forwards and foreign exchange contracts.

Derivative transactions are subject to the requirements of Part 7, Division 1 of the SBFA Act.

All foreign currency hedging transactions must be transacted with one of the major Australian banks.

Each transaction requires prior approval from the Deputy Vice Chancellor, Services and Resources and must be reported to the Treasurer in accordance with sections 55 and 56 of the SBFA Act.

The total value of foreign currency derivative transactions will not exceed $10m unless otherwise approved by the University Council.

Where the circumstances warrant based on risk and magnitude, advice from relevant expert advisors is to be obtained by management.

All hedging transactions must be included in reports to the Finance Committee.

Managing Hedging Risk

In order to manage the risks associated with entering into hedging transactions Financial & Business Services will determine appropriate control mechanisms to monitor and manage both; the risk of individual hedging transactions; and the portfolio of hedge instruments.

Procedures and Control

FMPM 841 – Foreign Exchange Risk Procedure explains the approval process to enter into the hedge transaction and elaborates on mechanisms to manage operational risk surrounding foreign exchange exposures under the following headings:

1. Contracts in Foreign Currency
2. Request to enter a hedge arrangement
3. Foreign Exchange Control

Related documents, legislation or JCU Statutes

Statutory Bodies Financial Arrangements Act 1982 (Part 7, Division 1 & s61A)

Australian Accounting Standard (AASB) 139 Financial Instruments: Recognition and Measurement

For enquiries in relation to this FMPM Policy please contact [email protected]

Administration

NOTE: Printed copies of this policy are uncontrolled, and currency can only be assured at the time of printing.

Approval Details

Revision History