SCHEDULE II: The Role of the New Zealand Debt Management Office

The NZDMO is responsible for managing substantial financial risks in the Crown’s balance sheet, including foreign-exchange exposures. The NZDMO is active in the foreign-exchange market on a daily basis and has staff experienced in dealing with foreign-exchange exposures. This expertise can be used by departments in the following ways:

1. Departments can deal directly with the NZDMO for their foreign-exchange requirements. The advantages of using NZDMO vis-a-vis another counterparty are:

1. Competitive Pricing for the Crown - because the NZDMO is very active in the financial markets, it is able to achieve wholesale pricing when hedging small and large exposures.

2. Cost savings from netting off exposures amongst departments - by netting off some exposures, the NZDMO can efficiently manage the Crown’s foreign-exchange risk without the need to hedge with an external counterparty.

3. Better management of credit and operational risk - this is achieved by minimising the number of transactions that occur with counterparties outside the Crown.

2. The NZDMO is available to provide advice to departments (typically at an operational level) on how best to cover their transaction exposure.

Procedure for foreign-exchange transactions

1. Transactions may be executed by phoning authorised NZDMO personnel. The following details will be required:

• purchase currency and amount;

• sale currency;

• required settlement date; and

• bank account details for paying and receiving funds.

2. The NZDMO will give the department a foreign-exchange rate for the transaction and, if this is acceptable, the deal will be completed over the phone.

3. The transaction will then be confirmed in writing to the department. The confirmation will include:

• trade date;

• currency and amount purchased;

• currency and amount sold;

• exchange rate;

• settlement date; and

• bank account details for both payment and receipt of funds.

4. Departments are required to return a separate confirmation to the NZDMO.

Procedure for foreign-currency deposits

1. Transactions may be executed by phoning authorised NZDMO personnel. The following details will be required:

• currency and amount;

• settlement date i.e. deposit date; and

• maturity date.

2. The transaction will be recorded @ 0% deposit rate. The NZDMO will invest the funds in the market place to ensure the Crown generates a return.

3. The transaction will be confirmed in writing to the department. The confirmation will include:

• trade date;

• currency and amount deposited;

• @ 0% deposit rate;

• settlement date;

• maturity date; and

• NZDMO’s bank account details.

4. Departments are required to return a separate confirmation to the NZDMO.