ECCB 2014-2015 Annual Report and Statement of Accounts

EASTERN CARIBBEAN CENTRAL BANK

Eastern Caribbean Central Bank Notes to Consolidated Financial Statements March 31, 2015 Eastern Caribbean Central Bank Notes to Consolidated Financial Statements March 31, 2015 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (expressed in Eastern Caribbean dollars) March 31, 2015

(expressed in Eastern Caribbean dollars) 3. Financial risk management … continued c) Market Risk (expressed in Eastern Caribbean dollars) Financial risk management …continued c) Market Risk 3. Financial risk management … continued c) Market Risk

3.

The Bank is exposed to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. The Bank’s reserve management mandate permits investment in a number of instruments. The Bank is exposed to general and specific market movements and volatility of market rates and prices such as interest rates, credit spreads and foreign exchange rates. The Bank enters into currency forward contracts to manage its exposure to fluctuations in foreign exchange rates for non-USD securities. The Bank also has a structured management process which entails the following:  Careful monitoring of the international market and taking positions to achieve objectives  Regular reporting to internal management committees and to the Board of Directors i) Interest rate risk The Bank invests in securities and money market instruments and maintains demand deposit accounts as a part of its normal course of business. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is the risk of loss arising from changes in prevailing interest rates. The Bank manages this risk by monitoring interest rates daily, and seeks to minimize the exposure by devising a comprehensive risk assessment and tolerance strategy known as “Customised benchmarking”. The effect of this tool is to reflect the risk tolerance level of the Bank and to measure the performance of portfolio managers. The table below analyses the effective interest rates for each class of financial asset and financial liability: 2015 2014 % % Foreign Assets Money market instruments and money at call 0.25 0.19 Available-for-sale - foreign investment securities 1.82 1.89 Domestic Assets Balances with local banks 0.05 0.08 Due from local banks 6.50 6.50 Term deposits 2.50 2.50 Loans and receivables - participating governments’ securities 5.45 5.42 Loans and receivables - participating governments’ advances 6.50 6.50 Liabilities Term deposits, call accounts and government operating accounts - - Demand and deposit liabilities - foreign - - The Bank is exposed to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. The Bank’s reserve management mandate permits investment in a number of instruments. The Bank is exposed to general and specific market movements and volatility of market rates and prices such as interest rates, credit spreads and foreign exchange rates. The Bank enters into currency forward contracts to manage its exposure to fluctuations in foreign exchange rates for non-USD securities. The Bank also has a structured management process which entails the following:  Careful monitoring of the international market and taking positions to achieve objectives  Regular reporting to internal management committees and to the Board of Directors i) Interest rate risk The Bank invests in securities and money market instruments and maintains demand deposit accounts as a part of its normal course of business. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is the risk of loss arising from changes in prevailing interest rates. The Bank manages this risk by monitoring interest rates daily, and seeks to minimize the exposure by devising a comprehensive risk assessment and tolerance strategy known as “Customised benchmarking”. The effect of this tool is to reflect the risk tolerance level of the Bank and to measure the performance of portfolio managers. The table below analyses the effective interest rates for each class of financial asset and financial liability: 2015 2014 % % Foreign Assets Money market instruments and money at call 0.25 0.19 Available-for-sale - foreign investment securities 1.82 1.89 Domestic Assets Balances with local banks 0.05 0.08 Due from local banks 6.50 6.50 Term deposits 2.50 2.50 Loans and receivables - participating governments’ securities 5.45 5.42 Loans and receivables - participating governments’ advances 6.50 6.50 Liabilities Term deposits, call accounts and government operating accounts - - Demand and deposit liabilities - foreign - - The Bank is exposed t k i h is the risk that he fair value or future cash flows of a financial instrument will fluctuate due to ch nges in market prices. The Bank’s reserve manageme t mandate p rmits invest t in a u ber of instrum nts. The Bank is exposed to general and specific market movements and volatility of market rates and prices such as interest rates, credit spre ds and foreig exchange rates. The Bank enters into currency forward contracts to manage its exposure to fluctuati ns in foreign exchange rates for non-USD securities. The Bank also has a structured management process which entails the following: — — Careful monitoring of the international market and taking positions to achieve objectives — — Regular reporting to internal management committees and to the Board of Directors (i) Interest rate risk The Bank i t in securities and money market instruments and maintains deman deposit accounts as a part of its normal course of business. Cash flow interest rate risk i the risk that future cas flows of a financial instrument wil fluct at because of changes in market int rest rates. Fair value interest rate risk is th risk that the value of a financi l instr me t will fluctuate because of changes in m rk t interest r tes. I terest rate risk is the risk of lo s arising from changes in prev il ng interest rates. The Bank m nages this risk by monitoring interest rates daily, and seeks to m imize the exposure by d vi ing a comprehensiv risk assessment and tolerance strategy known as “Customised benchmarking”. The effect of this tool is to reflect the risk tolerance level of the Bank and to measure the performance of portfolio managers. The table below analyses the effective interest rates for each class of financial asset and financial liability:

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ECCB ANNUAL REPORT 2014/2015

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