Page 152 - DUT Annual Report 2020

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DURBAN UNIVERSITY OF TECHNOLOGY ANNUAL REPORT 2020
DURBAN UNIVERSITY OF TECHNOLOGY
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020
22. RISK MANAGEMENT
The University’s principle financial instruments comprise investments at FVOCI, receivables in the form of student loans, current receivables, cash, short-term deposits, borrowings, lease liabilities and trade and other payables.
The University manages a substantial portfolio of financial assets with a long-term view to grow the portfolio in order to provide financial stability, settlement of longer-term liabilities, support for new initiatives and strategic objectives.
The main purpose of the borrowings is to raise finance for the University’s infrastructure. The University’s other financial assets and liabilities arise directly from its operations.
The main risks arising from the University’s financial instruments are market risk, credit risk and liquidity risk. The subsidiaries do not have significant financial instruments.
The University’s Council has overall responsibility for the establishment and oversight of the University’s risk profile. Council, through its finance, risk and investment committees, reviews and agrees policies for managing each of these risks.
22.1 Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market Risk comprises three types of risk; Price, Currency and Interest rate risk. The University’s exposure to market risk relates primarily to its investments at FVOCI financial assets.
The financial assets are invested in terms of a considered strategy adopted by the University’s Council and advised by the Investment Committee. Portfolios are allocated to selected portfolio managers who operate under defined mandates. The investment decisions made, and performances of these managers are closely monitored by the Investment Committee.
The Investment Committee meets quarterly and receives reports from investment managers on a cyclical basis. In addition, the Investment Committee may co-opt any individual, consultant or specialist in the event of their expertise being required.
Internal checks are performed to confirm the income received and the purchase and sale of investments are reflected on the portfolio statements.
Price risk
The University is exposed to equity securities price risk because of the listed investments held by the University and these are classified in the notes to the financial statements (Refer to Note 4).
At December 31, 2020, if the JSE index increased/decreased by 10% with all other variables held constant and all the University’s equity instruments moved according to the historical correlation with the index, funds would have been R 21 991 000 (2019: R 24 064 100) higher or lower as a result of the changes in the fair value of the investments.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The University is not exposed to cash flow interest rate risk on borrowings as all borrowings have fixed interest rates. All other variable interest rate financial assets and liabilities are exposed to interest rate risks. Interest rate risk is managed by ensuring that the University’s assets are invested in accounts which earn the best possible interest rates.