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(1) This document details the procedures relevant to the management of foreign exchange (2) This document should be read in conjunction with the Foreign Exchange Risk Policy. (3) This procedure applies to purchases and contracts in foreign currencies that may expose the (4) In the context of this document: (5) To the extent possible purchases and contracts will be agreed in Australian dollars. (6) Where there is a compelling business need to contract with suppliers or funders in a foreign currency, Financial Services will implement processes using the following hierarchy: (7) The (8) Where a business unit is seeking to make purchases or agree to contracts in a foreign currency of a significant value (i.e. over $200,000) the Finance Business Partner (FBP) for that business unit is to be contacted to conduct a (9) Where multiple arrangements are agreed with a single supplier, the total of those contracts will be considered when determining whether the purchases represent a significant value (i.e. over $200,000). (10) The following steps must be undertaken for contracts identified as being of significant value: (11) The (12) The following steps must be undertaken for purchases or contracts in a foreign currency for a value in excess of $200,000 (AUD): (13) The Foreign Exchange Risk Policy prohibits any business unit other than Financial Services entering into contracts, agreements or arrangements that actively seek to mitigate foreign exchange (14) Arrangements that constitute a hedge under the policy are defined in AASB 139 as an (15) Financial Services may use hedging contracts as a Hedging Instrument. AASB 139 (9) characterise hedging contracts that leverage the (16) Financial Services are responsible for: (17) In addition to the basic financial information, such as notional amount, Financial Services must ensure: (18) Financial Services must record all hedging contract transactions into the accounting system for record keeping, audit, and reporting purposes and must be able to produce the transaction report as required by senior management or Internal or External Audit, with the following information: (19) In addition, records must be kept of any foreign exchange transactions that are modified (e.g. changes to dates, amounts, or rates) or cancelled (e.g. as part of the foreign exchange register or foreign exchange system). This should include the cost of, and reasons for, any such modification or cancellation. (20) Financial Services will ensure that any exceptions or variations from the above authorised procedure for foreign exchange transactions is reported to the Chief Financial Officer, who can review and provide guidance on any remedial action that should be undertaken. (21) Foreign exchange transactions may be subject to audit procedures performed by Internal or External Audit as part of either party’s annual audit plans. (22) Financial Services manage the foreign currency risk on behalf of the (23) An annual review of the (24) Details of foreign currency instruments will be reported quarterly by the Chief Financial Officer to the Finance Committee in the Financial Services Report. (25) Australian Accounting Standard (AASB) 139 Financial Instruments: Recognition and Measurement.Foreign Exchange Risk Procedure
Section 1 - Purpose
Section 2 - Scope
Section 3 - Definitions
Top of Page
Defined Term
Meaning
Business Unit
Delegate
Refers to a person occupying a position that has been granted or sub-delegated a delegation of authority, or a committee or body that has been granted or sub-delegated a delegation of authority.
Foreign Exchange Risk
The
Foreign Currency
Any currency other than $AUD.
Foreign Currency Account
A bank account holding a foreign currency, held by the
Foreign Currency Movement
The change in the foreign currency amount between one point (i.e. budget or contract agreement) and the time a related transaction is finalised.
Foreign Exchange Rate
The rate at which the foreign currency can be exchanged.
Forward Exchange Rate
An agreed foreign currency rate set for a defined point in the future.
Hedging Contract
A binding transaction to limit exposure in the foreign currency exchange rate.
Portfolio Limit
The total amount of hedging contracts the
Section 4 - Contracts and Payments
Foreign Currency Transactions
Contracts in Foreign Currency
Step
Action
Responsibility
1
a. name of the requestor;
b. currency of the contract;
c. name of the delegate who has approved the contract;
d. timing of the forecast payments/receipts; and
e. reason why the contract is denominated in foreign currency.Business Unit
2
b. the appropriate banking details for foreign currency payments.Financial Services
3
b. all other currencies are to be received into the general operating bank account (AUD).Financial Services
4
a. the period between entering the commitment and scheduled payment date;
b. the certainty of the payment obligation arising;
c. the value of the foreign currency transaction;
d. the portfolio of hedge arrangements in place at the time the consideration is being made; and
e. the likelihood of future foreign currency inflows to offset the contracted expense.Financial Services
5
All hedging contracts are to be implemented by Financial Accounting, and must be approved in advance in accordance with the University delegations of authority.
Financial Services
Request to Enter Hedge Arrangement
Top of Page
Step
Action
Responsibility
1
Business Unit
2
For currency hedging, the contract owner will complete an internal Foreign Currency Purchase Form based on the contract details provided by the contract owner and email this to Finserv-FinancialAcc@newcastle.edu.au. The request must include payment schedules, stipulating the milestone payment(s), foreign currency amount, and expected payment date.
Business Unit
3
Once the completed form is submitted to Financial Services and the relevant approval delegations are confirmed, Financial Accounting will assess the requirement of a hedging contract. The register of open hedge contracts will be provided to the delegate for each individual request to demonstrate the portfolio limit (as per the Foreign Exchange Risk Policy) is not breached.
Financial Services
4
Where a hedging contract is required and approved, Financial Accounting will process a hedging transaction, in accordance with the Foreign Exchange Risk Policy, to lock in the forward exchange rate until the future date(s) specified. At the time the trade is confirmed the portfolio of hedging arrangements will be updated and the budget holder or contract owner, as applicable, must be notified of the hedge arrangement including the rate/s of exchange and date/s of settlement.
Financial Services
5
A new contract must be executed to reflect the amended terms and the existing hedge must be ‘closed out’. This process is managed by Financial Services following confirmation from the business unit.Financial Services
6
Foreign currency hedges will be reviewed by the Financial Accounting at each period end to enable accounting adjustments required in accordance with AASB 139, Financial Instruments. Resulting unrealised gains and losses, will be recognised in a corporate account. Upon settlement any realised gains and losses will be recognised in the relevant corporate accounts.
Financial Services
7
b. an amendment to the amount, currency, or date of payment; or
c. an amendment, due to any other change that would affect the Business Unit
Section 5 - Foreign Exchange Control
Monitoring and Review
Section 6 - Reporting
Section 7 - Related Documents