Note 29 continued
— 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 Note 11 Derivative financial
Instruments for details on the forward currency contracts held. Further exposures to foreign exchange risk through the movement of
NZ Dollars against those foreign currencies are also managed through the foreign exchange reserve as explained in Note 18.
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 Note 5 and 9 for currency exposures.
Currency risk sensitivity analysis — Tourism New Zealand is subject to volatility in financial performance associated with foreign
currency rates. As at 30 June 2015, if the NZ Dollar had increased/decreased by 5% against various foreign currencies used by Tourism
New Zealand with all other variables held constant, the deficit/surplus and equity would have changed as follows:
NZD to various currencies +5%
NZD to various currencies -5%
NZD to basket of currencies +5%
NZD to basket of currencies -5%
This movement is attributable to foreign exchange gains/losses on translation of forward foreign exchange contracts and other foreign
currency denominated assets and liabilities.
Credit risk is the risk that a third party will default on its obligations to Tourism New Zealand, causing Tourism New Zealand to incur a
Tourism New Zealand has no significant concentrations of credit risk, as it has a small number of credit customers and only places
funds with registered banks. With respect to foreign exchange instruments, Tourism New Zealand reduces its risk by limiting the
counter parties to major trading banks and does not expect to incur any significant losses as a result of non performance by these
Tourism New Zealand’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of
cash (note 9), net debtors (note 10) and derivative financial instruments (note 11). There is no collateral held as security against these
financial instruments, including those instruments that are overdue or impaired.
Liquidity risk is the risk that Tourism New Zealand will encounter difficulty raising liquid funds to meet commitments as they fall due.
Tourism New Zealand has no significant concentrations of liquidity risk. Tourism New Zealand annually agrees a funding schedule with
the Crown which matches the estimated timing of its commitments and close out of market positions.
The following liquidity risk disclosures reflect all contractually fixed pay-offs, repayments and interest resulting from recognised
financial and derivative financial instrument liabilities as of 30 June 2015. The timing of cash flows for liabilities is based on the
contractual terms of the underlying contract.