Archived decisions

15c

Short-term investments

Surplus cash balances are lent to borrowers on the County Council's approved

list. The level of short-term investments includes the effect of

the pooling of surplus Hampshire Pension Fund and Hampshire Police Authority

cash for treasury management purposes, which is reflected in the level of

borrowing repayable within one year.

Investments are typically for periods of up to 3 months and as such the loan amount

is a reasonable assessment of fair value.

Credit risk

Credit risk arises from deposits with banks and financial institutions. Deposits are not

made with banks and financial institutions unless they are rated independently with a

minimum score of A2 by Moody's (a Government recognised credit rating agency)

in respect of UK financial institutions, AA1 for foreign financial institutions and

AAA for money market funds.

The Authority also applies credit limits in respect of all of the above financial institutions

to ensure that deposits are spread across a number of its approved counterparties.

No credit limits were exceeded during 2007/08 and the Authority does not expect

any losses from non-performance by any of its counterparties in relation to deposits.

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Interest rate risk

The Authority is exposed to risk in terms of its exposure to interest rate movements

on its investments. For example, a rise in interest rates would have the following effects:

* investments at variable rates - the interest income credited to the income

and expenditure account will rise

* Investments at fixed rates - the fair value of investments will fall. Where

fixed rate investments have short maturities, the effect will be similar to

that for variable rate investments, as the replacement investments will

generate more income to the income and expenditure account.

The Authority has a number of strategies for managing interest rate risk. Interest rate

movements are monitored on a daily basis and the Authority seeks to lengthen the

duration of the investment portfolio when it perceives that a financial advantage

can be achieved. The Authority also aims to manage its investment maturity profile

to ensure that no single month exposes the Authority to a substantial re-investment

requirement when interest rates may be relatively low.

Foreign exchange risk

The Authority has no financial assets denominated in foreign currencies

and thus has no exposure to loss arising from movements in exchange rates.

15d

Long-term borrowing

Long-term borrowing is carried in the balance sheet at amortised cost. The

fair value can be assessed by calculating the present value of the cash flows that

will take place over the remaining term of the instruments, using premature

repayment interest rates from the Public Works Loan Board (PWLB).

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