Note 33: Financial Instruments
The Government has devolved responsibility for the financial management of its financial portfolios to its sub-entities such as NZDMO, Reserve Bank, NZS Fund, Inland Revenue and ACC. The financial management objectives of each of these portfolios are influenced by the purpose and associated governance framework for which the portfolio is held. The purposes of a portfolio may cover:
- public policy considerations eg, the provision of student loans to support tertiary education policy
- liquidity management eg, Treasury bills and Government Stock are the primary debt instruments for funding core Government operations, and
- long-term economic return eg, the function of the NZ Superannuation Fund.
These purposes are not mutually exclusive, with portfolios typically established for, or arising from, a public policy objective, such as pre-funding future superannuation expenses, but in doing so are managed to maximise economic returns consistent with the policy objective.
Reporting to Ministers on these portfolios is done on a portfolio-by-portfolio basis. The institutional frameworks and policy objectives of these portfolios are reviewed periodically. Otherwise reporting on the consolidated financial management and performance of these portfolios is done in the context of the interim and annual Financial Statements of the Government and the forecasts reported in the Half-Year and Budget Economic and Fiscal Updates.
Details of the significant accounting policies and methods adopted including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in Note 1 of the financial statements.
(a) Analysis of financial instruments
Financial instruments are measured at either fair value or amortised cost. Changes in the value of an instrument may be reported in the operating balance or directly in net worth depending on its designation. The following table details the value of financial assets and financial liabilities by class of instrument and by designation category, as defined in the accounting policies in Note 1.
Financial Assets
| Financial assets as at 30 June 2009 | Designation | |||||
|---|---|---|---|---|---|---|
| Note | Amortised cost | Available for sale | Held for trading | Fair value through P&L | Total | |
| $m | $m | $m | $m | $m | ||
| Cash and cash equivalents | 6,268 | - | - | - | 6,268 | |
| Trade and other receivables | 14 | 3,151 | - | - | - | 3,151 |
| Long-term deposits | 15 | 2,695 | - | - | 441 | 3,136 |
| Derivatives in gain | 15 | - | - | 3,745 | - | 3,745 |
| Marketable securities | 15 | - | 646 | 773 | 36,954 | 38,373 |
| IMF special drawing rights | 15 | 454 | - | - | - | 454 |
| Share investments | 16 | - | 74 | - | 11,086 | 11,160 |
| Student loans | 17 | 6,553 | - | - | - | 6,553 |
| Kiwibank mortgages | 17 | 6,370 | - | - | 2,122 | 8,492 |
| Other advances | 17 | 519 | - | - | 40 | 559 |
| Total financial assets by designation | 26,010 | 720 | 4,518 | 50,643 | 81,891 | |
| Financial assets as at 30 June 2008 | Designation | |||||
|---|---|---|---|---|---|---|
| Note | Amortised cost | Available for sale | Held for trading | Fair value through P&L | Total | |
| $m | $m | $m | $m | $m | ||
| Cash and cash equivalents | 3,804 | - | - | - | 3,804 | |
| Trade and other receivables | 14 | 3,214 | - | - | - | 3,214 |
| Long-term deposits | 15 | 2,039 | - | - | 748 | 2,787 |
| Derivatives in gain | 15 | - | - | 1,563 | - | 1,563 |
| Marketable securities | 15 | - | 759 | 490 | 35,402 | 36,651 |
| IMF special drawing rights | 15 | 188 | - | - | - | 188 |
| Share investments | 16 | - | 76 | - | 12,888 | 12,964 |
| Student loans | 17 | 6,741 | - | - | - | 6,741 |
| Kiwibank mortgages | 17 | 2,427 | - | - | 3,154 | 5,581 |
| Other advances | 17 | 578 | - | - | 48 | 626 |
| Total financial assets by designation | 18,991 | 835 | 2,053 | 52,240 | 74,119 | |
As at 30 June 2009, the carrying value of financial assets that have been pledged as collateral was $930 million (2008: $634 million). These transactions are conducted under terms that are usual and customary to standard securities borrowing.
