Note 18: Financial instruments
Our financial instruments are limited to cash and cash equivalents, receivables, and creditors and other payables. These activities expose the Office to low levels of financial instrument risks, including market risk, credit risk, and liquidity risk.
Market risk
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
We incur a small portion of operating expenditure in foreign currency, and risk is minimised through prompt settlement. Recognised liabilities that are payable in a foreign currency were nil at balance date (2020: Nil).
Interest rate risk
Interest rate risk is the risk that the fair value of a financial instrument will fluctuate, or the cash flows from a financial instrument will fluctuate, due to changes in market interest rates.
We have no interest-bearing financial instruments and, accordingly, no exposure to interest rate risk.
Credit risk
Credit risk is the risk that a third party will default on its obligation to the Office, causing the Office to incur a loss.
In the normal course of the Office's business, credit risk arises from receivables and deposits with banks.
We are permitted to deposit funds only with Westpac New Zealand Limited, a registered bank with high credit ratings. For other financial instruments, we do not have significant concentrations of credit risk.
Our maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents, and net receivables (see Notes 7 and 8).
There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty raising liquid funds to meet commitments as they fall due.
In meeting liquidity requirements, we closely monitor forecast cash requirements with expected debtor receipts and cash draw-downs from the New Zealand Debt Management Office. We maintain a target level of available cash to meet liquidity requirements.
Our financial liabilities are outlined in Note 12: Payables and deferred revenue. These are all due to be settled on 30-day terms.
Categories of financial instruments
The carrying amounts of financial instruments are as follows:
| Notes | Actual 2020/21 $000 |
Actual 2019/20 $000 |
|
|---|---|---|---|
| Loans and receivables | |||
| Cash and cash equivalents | 7 | 3,884 | 5,077 |
| Receivables | 8 | 9,938 | 8,174 |
| Total loans and receivables | 13,822 | 13,251 | |
| Financial liabilities measured at amortised cost | |||
| Payables | 7,581 | 7,830 | |
| Total creditors and other payables | 12 | 7,581 | 7,830 |