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Foreign Exchange Risk Policy

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Section 1 - Purpose and Context

(1) The purpose of this document is to define the Western Sydney University policy for the management of foreign exchange risk.

(2) This policy sets out the strategies for managing foreign exchange risk that the University is to employ, as well as the procedures for executing, monitoring, reporting and reassessing these strategies.

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Section 2 - Definitions

(3) For the purpose of this policy the following definition applies:

  1. Foreign Exchange Risk - the risk that an AUD loss relative to a certain point in time is created where:
    1. purchases denominated in a foreign currency become more expensive in AUD from the time the exposure is created to the time of settlement
    2. receipts denominated in a foreign currency reduce in AUD value from the time the exposure is created to the time of settlement.
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Section 3 - Policy Statement

Part A - Identifying Risk

(4) All University staff are responsible for identifying foreign exchange risk within their area of operation.

(5) Specifically, it will be the responsibility of all University staff to comply with the following in identifying foreign currency risk:

  1. All exposures identified by any staff in the University that exceed the equivalent of AUD 50,000 must be reported to the Finance Office immediately.
  2. All monthly cash flow forecast reports from the Office of Estate and Commercial and other units must highlight any known foreign currency component in their project forecasts.
  3. All known recurring foreign currency purchases or purchase orders placed (that are not pre-delivered) must be reported to the Finance Office immediately.
  4. A member of the Finance Office staff nominated by the Vice-President, Finance and Resources is to review all outstanding foreign exchange purchase orders on a monthly basis.

(6) A member of the Finance Office staff nominated by the Vice-President, Finance and Resources will monitor the total foreign currency payments on an ongoing basis by extracting overseas payment information from the accounting system on a monthly basis. The purpose of this exercise is to identify any trends in exposures to individual currencies that may be hedged on a monthly basis and reoccurring payments.

Part B - Strategies for Managing Foreign Exchange Risk

(7) All foreign currency receipts are to be converted to AUD at the spot exchange rate prevailing on the day of receipt.

(8) The Vice-President, Finance and Resources is to appoint an appropriate staff member to undertake ongoing monitoring of the materiality of foreign currency receipts. Where foreign currency receipts increase to a material nature (as determined by the Vice-President, Finance and Resources), the hedging strategy is to be revised and sent to the Finance and Investment Committee for recommendation and to the Board of Trustees for approval.

(9) The Vice-President, Finance and Resources is given delegated authority to approve the purchase of approved financial instruments such as forward exchange contracts (FECs) to hedge foreign currency purchases within the following thresholds:

  1. All natural offsets are considered before any derivative transactions are considered. The natural offsets are required to be highly probable in their timing and quantum.
  2. Where the exposure is in excess of AUD 500,000 equivalent, the use of derivatives to hedge this exposure should be allowed. All derivative transactions should be approved by the Vice-President, Finance and Resources.
  3. Where the value of a reported foreign currency purchase is between AUD 50,000 and AUD 500,000 equivalent, the use of derivatives should be allowed only if a benchmark exchange rate (such as AUD/USD=0.90) is achievable and with direct approval from the Vice-President, Finance and Resources.

(10) The parameters around which financial instruments may be used are set out in the Treasury Policy.

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Section 4 - Procedures

Part C - Roles and Responsibilities for Executing Strategies

(11) The foreign exchange risk policy is to be approved by the Board of Trustees.

(12) The Finance and Investment Committee is responsible for ensuring compliance with the foreign exchange risk policy and that appropriate reviews, changes and improvements are made to the policy for approval by the Board.

(13) The Vice-President, Finance and Resources is responsible for ensuring the execution of foreign currency risk policy within the parameters set out in the Treasury Policy.

(14) A member of staff nominated by the Vice-President, Finance and Resources is responsible for obtaining and recording quotes for the FEC deal from at least three of the authorised counterparties specified in the Treasury Policy.

(15) An authorised dealer (as specified in the Treasury Policy) is responsible for entering into an FEC deal with the authorised counterparty (Bank).

(16) An authorised signatory (as specified in the Treasury Policy) is responsible for approving the execution of the deal.

Part D - Monitoring Policy Compliance

(17) Refer to the Treasury Policy.

Part E - Management Reporting

(18) Refer to the Treasury Policy.

Part F - Reassessment of Results and Policy Implications

(19) Refer to the Treasury Policy.

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Section 5 - Guidelines

(20) Refer to Section 3 for guidelines.