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Monash University Policy Bank

Treasury Management

Purpose

  • To ensure the University's continued ability to meet its financial obligations in an orderly and timely manner through the maintenance of cash flow reporting systems and active liquidity and working capital management. 
  • To safeguard the University's financial resources by ensuring appropriate credit risk parameters are maintained and regularly reviewed, and by ensuring that internal controls are established to ensure that such parameters are adhered to by both Treasury Staff and external fund managers.
  • To maximise the return on University investments and to minimise the cost of borrowings through the effective control and management of the interest rate risks of the University.
  • To provide an effective communication facility between the University and its financial service providers and with internal users of Treasury Unit services.

Scope

All campuses except Malaysia
All staff
All controlled entities

Policy Statement

All external investments of Monash University are maintained in three investment portfolios:

  • Monash University Corporate Treasury Portfolio,
  • Monash University Balanced Fund Portfolio and
  • Monash University Common Fund Portfolio.

All portfolios are managed by an external Fund Manager appointed by the University.

All portfolios must be evidenced by signed Investment Management Agreements approved by Monash University Solicitors Office, which detail the terms and conditions under which the Fund Manager is to manage the investments. The Investment Management Agreement should be based on the standard agreement approved by the Investment and Financial Services Association (IFSA) amended to meet the specific requirements of Monash University.

On the approval of Resources and Finance Committee and Monash University Council investments may also be managed internally by Treasury & Corporate Receivables. These are regarded as Internally Managed Investments.

Financial Arrangements: Interest Rate/Currency Swaps, Futures Contracts, Caps, Floors and Collars, Options, and Forward Rate Agreements may be used in the management of Monash University's internally and externally managed investment portfolios, and borrowings.

Under no circumstances can an external fund manager or Monash University staff member enter into such a financial arrangement without there being sufficient assets (or liabilities) to support the transaction. Details of all financial arrangements must be advised as soon as is practical to the Vice President (Finance) and CFO or in his absence, the Divisional Director, Corporate Finance and be reported to Resources & Finance Committee at each meeting. A financial arrangement may only be entered into with a recognised financial institution (or its subsidiary) with an investment grading of A1 and above (short term) and/or AA+ and above (long term).

Supporting procedures

Balanced Fund Portfolio Management (Aust.)
Common Fund Portfolio Management (Aust.)
Internally Managed Investments (Aust.)
Treasury Portfolio Management (Aust.)

Supporting guidelines

Responsibility for implementation

Treasurer

Status

New

Key Stakeholders

Resources & Finance Committee
Audit & Risk Management
Treasurer

Approval body

Name: Strategy and Resources Committee
Meeting: 01/2008
Date: 07-February-2008
Agenda item: 8.2

Endorsement body

Name: Resources & Finance Committee
Meeting: 06/2007
Date: 22-November-2007
Agenda item: 3.2.8

Definitions

Interest Rate Risk: the risk that profitability in current or future periods will be affected by interest rate movements (on investments and borrowings).

Accounting Risk: where periodic accounting profits can be affected by interest rate movements, this risk is greatest with short term borrowings/investments where renegotiations are frequent

Economic Risk: where changes in interest rates affect the value of the University’s investments and borrowings.

Basis Risk: where interest rate hedging mechanisms are used that do not exactly reflect all characteristics of the underlying exposure being hedged.

Liquidity Risk: the risk that the University, through an unforeseen event or miscalculation, will have insufficient liquidity available at the right time to meet its obligations in an orderly manner.

Day to Day Cash Management: the combination of daily bank account management and effective cash management to ensure funds are available when needed.

Short Term Liquidity Crisis Management: management of liquid assets and available facilities to cover a sudden unforeseen event that severely inhibits the inward cashflow normally expected.

Long Term Going Concern Liquidity Management: the ongoing process of ensuring liquid assets and funding sources are available at all times to meet future long term requirements.

Credit Risk: the risk that the University will suffer a financial loss through the unwillingness or inability of a counterparty to meet its obligations. Credit risk can vary with the type of transaction involved. Investing funds with an organisation creates a credit risk for the full amount of the investment plus interest. However, for a forward interest rate agreement, the exposure is only for potential loss through interest rate movements.

Operational Risk: the risk of financial loss arising from the operational activities of the treasury function eg. staffing, information systems, security.

Financial Arrangement: Interest Rate/Currency Swaps, Futures Contracts, Caps, Floors and Collars, Options and Forward Rate Agreements.

Interest Rate/Currency Swaps: an agreement to exchange a series of cash flows at one interest or exchange rate. It enables the movement from fixed rate to floating rate when interest rates look like falling and vice versa. As a swap does not include the exchange of principal amounts finer pricing can be achieved.

Futures Contracts: an agreement to trade a specified amount of funds through a recognised exchange at a predetermined date in the future at a specified price. It enables short term protection against movements in short term interest rates.

Options: provide the right but not an obligation to borrow or lend at an agreed price, buy or sell a currency at an agreed exchange rate or buy and sell equities at an agreed price on or by a specified date. For this right a premium may be paid.

Caps, Floors, Collars: provide protection, using options, against interest rates and/or currencies rising above a certain level, falling below a certain level or a combination of both.

Related legislation

Monash University Act

Related policies


Related documents

Date Effective

07-February-2008

Review Date

09-June-2009

Owner

Vice President Finance

Author

Treasurer

Content Enquiries

Finance Policy

University Policy Use

Version Number: 1.0

Contact: adm-PolicyBank@monash.edu

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