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Note 28

Financial instrument risks

Tourism New Zealand’s activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk.

Tourism New Zealand has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure

from financial instruments. These policies do not allow any transactions that are speculative in nature.

Market Risk

Interest rate risk

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

Tourism New Zealand is exposed to interest rate risk on its cash balances. Refer to note 8 for cash balances exposed to interest rate risk.

Interest rate risk sensitivity analysis

— As at 30 June 2017, if interest rates on cash balances had increased/decreased by 0.5% (50

basis points) with all other variables held constant, the deficit/surplus and equity would have changed as follows:

Surplus/(deficit) higher/(lower)

Equity higher/(lower)

2017

$000s

2016

$000s

2017

$000s

2016

$000s

Group

+ 0.5% (50 basis points)

4

8

-

8

- 0.5% (50 basis points)

(4)

(8)

-

(8)

Parent

+ 0.5% (50 basis points)

4

8

-

8

- 0.5% (50 basis points)

(4)

(8)

-

(8)

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.

As a result of significant operations around the world, Tourism New Zealand is required to enter into transactions denominated in foreign

currencies. As a result of these activities, Tourism New Zealand is exposed to foreign currency risk on its foreign denominated cash

balances, receivables, creditors and other payables, and derivative instruments.

It is Tourism New Zealand’s policy to manage foreign currency risks arising from contractual commitments and liabilities by entering into

foreign exchange forward contracts to significantly reduce the foreign currency exposure. These forward exchange contracts are entered

into prior to the commencement of the financial year to cover the exposure on budgeted NZD spend in targeted markets based on the

market’s economic outlook and other factors that might have an impact on their currency. Refer to Derivative financial Instruments (note

10) for details on the forward currency contracts held. Further exposures to foreign exchange risk through the movement of New Zealand

dollars against those foreign currencies are also managed through the foreign exchange reserve as explained in Note 17.

The basket of currencies that Tourism New Zealand holds also reduces the risk from any single currency as all currencies are not

expected to move adversely against the NZD. Refer to the total expenditure of the Parent by geographic region (note 5) and Cash and

cash equivalents (note 8) for currency exposures.

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