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Guidelines for the Management of Crown and Departmental Foreign Exchange Exposure

1.  Foreign-Exchange Policy Objectives

Guideline 1

The policy document must state the department’s foreign-exchange policy objectives.

  1. Each department is required to produce a policy document for the management of their transaction exposure so that this exposure is covered in a systematic way. Chief Executives are responsible for the development and implementation of their department’s policies.

  2. The policy document must contain the department’s policy objectives. Consistent with the Crown’s approach to risk, these objectives should include the following:

    • to minimise transaction exposure by covering all material foreign-exchange exposures as soon as they arise, with approved instruments and counterparties;

    • to minimise counterparty exposure by establishing the criteria for acceptable transaction and bank account counterparties and limiting the amount of exposure to any single counterparty; and

    • to ensure that the policies and practices comply with the Public Finance Act 1989 and the Guidelines for the Management of Crown and Departmental Foreign-Exchange Exposure.

  3. Departments may also choose to include other objectives relating to how they specifically manage their foreign-currency transactions and/or banking arrangements.

2.  Foreign-Exchange Exposure faced by the Department

Guideline 2

The policy document must describe the types of foreign-exchange exposure faced by the department.

  1. Transaction exposure is the principal type of foreign-exchange exposure which departments face (refer to paragraph 8 for a definition of this).

  2. The scale and type of the foreign-exchange exposure faced by a department will vary depending on the nature of the department’s operations. Examples of departments with foreign-exchange exposures and foreign-currency bank accounts include those which:

    • have personnel based overseas;

    • are responsible for administering foreign-currency receipts or payments on behalf of the Crown e.g. pensions, child support; and

    • acquire capital assets from overseas.

  3. The policy document must describe the types of foreign-exchange exposure faced by the department.

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