Annual Report 2020-21

Noosa Council
Notes to the Financial Statements
for the year ended 30 June 2021

Note 28. Financial Instruments and Financial Risk Management (continued)

Market risk
§Subnote§




Market risk is the risk that changes in market indices, such as interest rates, will affect the Council's income or the value of
its holdings of financial instruments.
§Subnote§




Interest rate risk
Noosa Shire Council is exposed to interest rate risk through investments and borrowings with Queensland Treasury and other
financial institutions.

It also has access to a mix of variable and fixed rate funding options through QTC so that interest rate risk exposure can
be minimised.

Sensitivity
Sensitivity to interest rate movements is shown for variable financial assets and liabilities based on the carrying amount at
reporting date.

The following interest rate sensitivity analysis depicts what effect a reasonably possible change in interest rates (assumed to
be 1%) would have on the profit and equity, based on the carrying values at the end of the reporting period. The calculation
assumes that the change in interest rates would be held constant over the period.

                                    Net carrying                Net result                              Equity
$ '000                                   amount         1% increase     1% decrease            1% increase     1% decrease

2021
QTC cash fund                              66,852                 669               (669)                 669              (669)
Other investments                           1,939                  19                (19)                  19               (19)
Loans - QTC                              (21,213)               (212)                 212               (212)                212
Net                                        47,578                 476               (476)                 476              (476)

2020
QTC cash fund                              54,627                 546               (546)                 546              (546)
Other investments                           2,139                  21                (21)                  21               (21)
Loans - QTC                              (21,517)               (215)                 215               (215)                215
Net                                        35,249                 352               (352)                 352              (352)


In relation to the QTC loans held by the Council, the following has been applied:

QTC generic debt pool - the generic debt pool products approximate a fixed rate loan. There is a negligible impact on interest
sensitivity from changes in interest rates for generic debt pool borrowings.


(b) Fair value
§Subnote§




The fair value of trade and other receivables and payables is assumed to approximate the value of the original transaction,
less any allowance for impairment.

The fair value of borrowings with QTC is based on the market value of debt outstanding. The market value of a debt obligation
is the discounted value of future cash flows based on prevailing market rates and represents the amount required to be repaid
if this was to occur at balance date. The market value of debt is provided by QTC and disclosed in Note 19.

QTC applies a book rate approach in the management of debt and interest rate risk, to limit the impact of market value
movements to clients' cost of funding. The book value represents the carrying value based on amortised cost using the effective
interest method.




                                                                                                                      Page 45 of 61