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                                  28 FEBRUARY 2008







1.1 That Council approve the Treasury Management Strategy for 2008/2009. The
    Strategy includes the Department for Communities and Local Government (DCLG)
    reporting requirements in accordance with the Local Government Investments
    Guidance under Section 15(1)(a) of the Local Government Act 2003.

1.2 That Council approve the revised Treasury Management Code of Practice (Appendix
    B), which has been updated to reflect the following:

        The implications of the updated Money Laundering Regulations 2007 and the
         Terrorism Act 2000 and the Proceeds of Crime Act 2002 (Amendment)
         Regulations 2007.

        The details of the new contract with National Westminster Bank plc for banking
         services with effect from 1 April 2008.


2.1 The Council‟s Treasury Management Policy requires an annual report on the strategy
    to be adopted in respect of the following year‟s Treasury Management operation and
    the Local Government Investments guidance indicates that the Annual Investment
    Strategy can be included in this annual report.

2.2 The Treasury Management Strategy details the activities of the Treasury
    Management function in the forthcoming year 2008/09. The Strategy for 2008/09
    reflects the views on interest rates of leading market forecasts provided by Sterling
    Consultancy Services, the Council‟s advisor on treasury matters. It also includes the
    Prudential Indicators relating to Treasury Management.

2.3 The CIPFA Code of Practice on Treasury Management, when adopted by a local
    authority, gives it the status of “a code of practice made or approved by or under
    enactment” and hence proper practices under the provision of the Local Government
    and Housing Act 1989.



     Financial            -   Contained within Strategy
     Staffing             -   None
     Legal                -   Contained within Strategy
     Assets               -   Contained within Strategy
     Policy               -   Contained within Strategy
     Equality             -   None
     Crime & Disorder     -   The Council has adopted a Money Laundering Policy
     Other implications   -   No significant implications


     Appendix A – Treasury Management Strategy 2008/09
     Appendix B – Treasury Management Code of Practice

Cabinet Member                                      Cllr. F. Keegan   Tel Ext No: 4178

Chief Executive                                     Mrs. V. Horton    Tel Ext No: 4161

Corporate Manager                                   Miss. L. Quinn    Tel Ext No: 4801

The Contact Officer for this report is Lisa Quinn


Consultation              Ward Members              Partners

Panel                     Overview & Scrutiny       Cabinet            Council
                                                    6 February 2008    28 February 2008


The following documents were used to complete this report and are available for public
inspection for four years from the date of the meeting from the Contact Officer named

Sterling‟s Interest Rate Forecasts
                                                                           APPENDIX A



  The Local Government Act 2003 requires the Council to have regard to the Prudential
  Code and to set Prudential Indicators for the next three years to ensure that the
  Council‟s capital investment plans are affordable, prudent and sustainable.

  The Act therefore requires the Council to set out its Treasury Strategy for borrowing
  and to prepare an Annual Investment Strategy; this sets out the Council‟s policies for
  managing its investments and for giving priority to the security and liquidity of those

  The suggested Strategy for 2008/09 in respect of the following aspects of the Treasury
  Management function is based upon the Treasury officers‟ views on interest rates,
  supplemented with leading market forecasts provided by the Council‟s Treasury
  advisor. The Strategy covers:

     treasury limits in force which will limit the treasury risk and activities of the
     Prudential Indicators
     the current treasury position;
     prospects for interest rates;
     the investment strategy;
     any extraordinary treasury issues.


  The Council‟s treasury portfolio position as at 17th January 2008 comprised:

  Investments                         Principal            Rate
                                          £                %

  Bank of Scotland Plc                5,000,000            5.75
  HSBC Plc                            1,000,000            5.27
  Nottingham Building Society         1,000,000            6.20
  Hinckley & Rugby B Society          1,000,000            6.25
  Cheshire Building Society           1,000,000            6.75
  Skipton Building Society            3,000,000            6.34
  Derbyshire Building Society         1,000,000            6.30
  West Bromwich Building Society      1,000,000            6.30
  Darlington Building Society         2,000,000            6.50
  Cheshire Building Society           1,000,000            6.65
  Bank of Scotland (Ireland) Plc      1,000,000            6.73
  Derbyshire Building Society         1,000,000            6.00
  Principality Building Society       2,000,000            6.15
  Chelsea Building Society            2,000,000            6.20
  Manchester Building Society         1,000,000            6.20
  Cumberland Building Society         2,000,000            6.20
  Investments                      Principal                   Rate
                                       £                        %
  Norwich & Peterborough B Society 1,000,000                   5.90
  Stroud & Swindon B Society       1,000,000                   5.78
  Bradford & Bingley               1,000,000                   5.66
  Derbyshire Building Society      1,000,000                   5.66
  Derbyshire Building Society      2,000,000                   5.63
  RBS Money Market Fund            2,570,000                   5.63

  Total Investments                     34,570,000

  The Large Scale Voluntary Transfer (LSVT) of the Council‟s Housing Stock took place
  on 17th July 2006. It generated a substantial capital receipt of £11.5m. A proportion of
  this capital receipt was used to finance the capital programme and the remainder,
  £6m, was set aside to generate investment income to contribute towards Housing
  residual costs. This amount will remain set-aside in light of LGR.


  The Council recognises that any investment has an element of risk and it is therefore
  important that such risks are controlled. Good risk management with regard to the
  Treasury function is essential, the Council therefore aims to minimise the risk where
  possible and at the same time reduce the impact if a problem did occur. This section
  highlights the key risks where the Council has to make informed judgements as to their
  potential impact.

  Interest Rate Risk

  Interest rate risk in the context of a Treasury Strategy is the risk that fluctuations in the
  levels of interest rates create an unexpected or unbudgeted burden on the Council‟s
  finances, against which the Council has failed to protect itself adequately. Section 4
  gives detailed advice from the Council‟s Treasury Management advisor, Sterling, on
  the predicted level of interest rates and the factors that influence them.

  Choices need to be made about the institutions with which the Council invests its cash
  surpluses and the length of time over which the investments are to be made. The level
  of interest offered should be a key element of that choice. The monitoring of short and
  long term rates is a daily process and the Treasury officers use all relevant and
  available information to form the basis of their investment decisions. Risk in this area
  is also spread by using three broker firms.

  The comparison of average interest rate earned on investments against the London
  Inter-bank Bid Rate for seven days is reported to Cabinet on a quarterly basis. The
  Council is forecast to comfortably achieve its target of average actual rates exceeding
  the LIBID 7 day rate throughout the year.

  Inflation Risk

  Inflation risk is the risk that prevailing levels of inflation cause an unexpected or
  unbudgeted burden on the Council‟s finances. Treasury staff will monitor inflation
  levels throughout the year and will report on the impact of significant changes through
  the budget monitoring and forecast process.
  For 2008/09 the Council‟s General Fund Budget includes a provision for 3.8% price
  inflation, (based on RPI). This is the average level at which price inflation is assumed
  to be during the financial year. Inflation levels are currently higher than the assumed
  average for the year. The situation will be monitored closely and any adverse impact
  on the budget will be proactively managed.

  Market and Credit Risks

  Market risk is defined as the risk that, through adverse market fluctuations in the value
  of the principal sums the Council invests, its stated Treasury Management policies and
  objectives are compromised, against which effects it has failed to protect itself

  The Council therefore needs to create an approved lending list that specifies
  institutions with which the Council will invest. The approved lending list should specify
  the amount that can be invested as well as the limit of the investment.

  The list used by the Council includes credit rated and non credit rated institutions and
  is based on an assessment of an institution‟s ability to service and repay debt
  obligations. The non credit rated institutions are Building Societies and more stringent
  limits are placed on these bodies to reflect the higher risk. By undertaking this
  approach the risk of failure of a third party to meet its investment obligations and the
  detrimental effect that would ensue on the Council‟s capital or revenue resources
  (known as credit and counterparty risk) will be limited. The Annual Investment Strategy
  required by the DCLG Local Government Investment guidance categorises
  investments as specified and non-specified (see Annex A).

  The Treasury Strategy seeks to take into account these risks when specifying activity
  for the financial year. However, although the actions contained within the Strategy will
  limit the risks some risk will still remain. These will be identified in the authority‟s risk
  management strategy and schedules and managed accordingly.


  Sterling, the Council‟s Treasury advisors, assists in formulating a view on interest rates
  as part of their service.

  Sterling‟s current interest rate view is that the repo (base) rate will:

     fall to 5.25% in Q1 2008
     fall through 2008, ultimately to 4.50% by the end of the year
     begin to rise again around Q3 2009

                   Q1 2008       Q2 2008        Q3 2008       Q4 2008        Q1 2009

  Base Rate          5.25%         5.00%           4.75%         4.50%        4.50%

  According to Sterling there is a likelihood of approximately 60% for the above outcome,
  with a 20% probability of either tighter or looser monetary policy. The risk to this
  forecast is fairly evenly balanced between upside risks to inflation and downside risks
  to growth. High inflation could prevent the Bank of England from loosening monetary
  policy as much as forecast, while the prospect of a recession could encourage
  policymakers to cut more aggressively. The outlook for the property markets and the
  availability of credit, along with the resultant behaviour of households and companies,
  will be key to the prospects for growth and inflation over the next year.


  The Council has regard to the DCLG‟s Guidance on Local Government Investments
  (“the Guidance”) issued in March 2004 and CIPFA‟s Treasury Management in Public
  Services Code of Practice and Cross Sectoral Guidance Notes (“the CIPFA TM Code”).

   Investment instruments identified for use in the financial year are listed under the
  „Specified‟ and „Non-Specified‟ Investments categories in Annex A. Counterparty limits
  will be as set through the Council‟s Treasury Management Practices – Schedules.

  Investment Objectives

  All investments will be in sterling. The general policy objective for this Council is the
  prudent investment of its treasury balances. The Council‟s investment priorities are the
  security of capital and liquidity of its investments.

  The council will aim to achieve the optimum return on its investments commensurate
  with the proper levels of security and liquidity. The DCLG maintains that the borrowing
  of monies purely to invest or on-lend and make a return is unlawful and this Council
  will not engage in such activity.

  Security of Capital - The Use of Credit Ratings

  This Council relies on credit ratings published by Fitch Ratings and Moody‟s Investors
  Services to establish the credit quality of counterparties and investment schemes. The
  Council has also determined the minimum long-term, short-term and other credit
  ratings it deems to be “high” for each category of investment.

  Monitoring of credit ratings:

   All credit ratings will be monitored monthly. The Council receives a monthly updated
    Counter party list from Sterling Consultancy Services.

   If a counterparty‟s or investment scheme‟s rating is downgraded with the result that
    it no longer meets the Council‟s minimum criteria, the further use of that
    counterparty/investment scheme as a new investment will be withdrawn

   If a counterparty is upgraded, so that it fulfils the Council‟s criteria, it will be added to
    the approved list.

  Investment balances/Liquidity of investments

  Based on its cash flow forecasts, the Council anticipates its fund balances in 2008/09
  to range between £0m and £40m.

  The capital receipt for LSVT received in 2006/07 was £11.5m, of which the levy
  payable to the DCLG was £2,030,288. £6m of the net balance received has been set –
aside, originally for the purpose of covering the Housing Transfer residual costs, and
now in light of LGR.

The LSVT agreement includes a sharing arrangement for the Right-to-Buy (RTB) sales
that occur after Transfer. The agreement states that the Council will have a 50% share
in the proceeds of RTB sales, after calculating the net income foregone, for the first
five years following Transfer. The agreement also states that Cheshire Peaks and
Plains Housing Trust (CPP) will spend their 50% share of the proceeds on the
provision of affordable housing in the Borough. After five years the Council receives
100% of the proceeds of RTB sales, after calculating the net income foregone.

The LSVT agreement also includes a VAT Shelter arrangement. The Council is using
CPP as a development agent for the improvement of the Housing Stock and CPP can
therefore treat the VAT on improvement works as if they are within the Council‟s VAT
framework. This results in additional monies for both the Council and CPP equivalent
to a capital receipt at current projections of £13.8m. The arrangement is calculated
over a 10 year period, with the Council receiving the first £3.4m, CPP receiving the
second £3.4m and the remainder split 50:50 to the end of the 10 year arrangement.
The projected receipt for the Council for 2008/09 is £650,000. The projection takes
account of the risk of changes to the VAT arrangements or level during the period of
the agreement.

In addition the following Council owned assets have been identified for disposal at this

     Bollington Town Hall
     Land off Handforth Dean
     Oakdean
     Black Road
     Land off Birtles Road

Any capital receipts will be incorporated in the capital budget at the appropriate time.

During the financial year, £3.7m has been earmarked for capital spending
commitments in 2007/08 and an additional £3.3m is earmarked for 2008/09. Capital
schemes totalling £6.9m have been delayed or deferred from the 2007/08 programme
including £3.2m held over in respect of the Leisure Services Review and £2.7m for
Spring Street Multi-Storey Car Park.

The minimum amount of its overall investments that the Council will hold in short-term
investments is £0m/0%.

Giving due consideration to the Council‟s level of balances, the need for liquidity, its
spending commitments and provisions for contingencies, the Council has determined
that £4m of its overall fund balances can be prudently committed to longer term
investments i.e. those with a maturity exceeding one year. The core cash position has
been calculated as follows:
               Balance Sheet Item                       £m
               PCL Balance*                             2.1
               GF Working Balance                       1.7
               Other Long Term Balances                 0.2
               Total                                    4.0

     PCL Balance – Provision for Credit Liabilities balance is the remainder of the capital
      receipts set-aside prior to 2002/03 to repay debt.

  The strategy will need to take account of the implications of LGR on its Treasury
  Management functions. The Council will therefore seek advice from its Treasury
  Management Advisers, Sterling, on the ability of the Council to invest its balances for
  periods beyond 1 April 2009.

  Investments Defined as Capital Expenditure

  The acquisition of share capital or loan capital in any corporate body is defined as
  capital expenditure under Section 16(2) of the Local Government Act 2003. Such
  investments will have to be funded out of capital or revenue resources and will be
  classified as Non-Specified Investments.

  A loan or grant by this Council to another body for capital expenditure by that body is
  also deemed by regulation to be capital expenditure by this Council. It is therefore
  important for this Council to clearly identify if the loan has been made for policy
  reasons e.g. to a Registered Social Landlord for the construction/improvement of
  dwellings or if it is an investment for Treasury Management purposes. The latter will
  be governed by the framework set by the Council for Specified and Non-Specified

  Provisions for Credit-Related losses

  If any of the Council‟s investments appeared at risk of loss due to default (i.e. this a
  credit-related loss, and not one resulting from a fall in price due to movements in
  interest rates) the Council will make revenue provision of an appropriate amount.

  Investment Strategy to be followed In-House

  Investments will be made having regard to the cash flow patterns for the year, the
  fluctuations in interest rates and the lending list criteria. Sterling is forecasting base
  rates to fall to 5.25% in Quarter 1 with subsequent falls during 2008, ultimately
  reducing to 4.50% by the end of the year. For 2008/09 the budgeted investment return
  is 5.00%.

  End of year Investment Report

  At the end of the financial year, the Council will prepare a report on its investment
  activity as part of its Annual Treasury Report.


  The Local Government Act 2003 requires each authority to determine and keep under
  review how much money it can afford to borrow. This is to be determined by the
  calculation by the authority of an affordable borrowing limit, which Regulations to the
Act specify should be calculated with regard to the CIPFA Prudential Code as reported
to Cabinet.

Prudential Indicators for Borrowing Requirements

P3.        Capital Financing Requirement

                                      2006/07     2007/08 2008/09   2009/10     2010/11
                                       £000         £000     £000     £000        £000
                                      Actual      Estimate Estimate Estimate    Estimate

 Total non-HRA                             416        416      416       416         416
 Total                                     416        416      416       416         416

P1.       Capital Expenditure

                                      2006/07     2007/08 2008/09   2009/10     2010/11
                                       £000         £000     £000     £000        £000
                                      Actual      Estimate Estimate Estimate    Estimate

 Total non-HRA                            3,194      7,231    3,300     2,103        870
           HRA                              787          0        0         0          0
 Total                                    3,981      7,231    3,300     2,103        870

The estimates of capital expenditure to be incurred for the current and future years are
to be approved by Council on 28 February 2008.

Borrowing Limits

In accordance with the Code, the authority is required to set limits, within which
borrowing is permitted. In respect of its external debt, the Council has approved the
following Authorised Limits for its total external debt gross of investments for the next
three financial years. These limits separately identify borrowing from other long term
liabilities such as finance leases.

P4.        Authorised limit for external debt

                                      2006/07     2007/08 2008/09  2009/10      2010/11
                                       £000         £000    £000     £000         £000
                                      Actual       Actual Estimate Estimate     Estimate

 Borrowing                                6242       7196     7628      8085        8571
 Other long term liabilities                 0          0        0         0           0
 Total                                    6242       7196     7628      8085        8571
  The CFO reports that these Authorised Limits are consistent with authority‟s current
  commitments, existing plans and the proposals in this report for capital expenditure
  and financing. It should be noted that whilst the Council is debt free, there may be
  circumstances in which short term borrowing needs to be taken out. This is why there
  is a need to set a borrowing limit.

  P5.         Operational boundary for external debt

                                            2006/07   2007/08 2008/09   2009/10       2010/11
                                             £000       £000     £000     £000          £000
                                            Actual    Estimate Estimate Estimate      Estimate

    Borrowing                                     0         0          0          0          0
    Other long term liabilities                   0         0          0          0          0
    Total                                         0         0          0          0          0

  The authorised limit determined, shown above, is the statutory limit determined under
  section 3(1) of the Local Government Act 2003.


  In July 2006 the Government published „Implementing the Third Money Laundering
  Directive: A Consultation Document‟. This document outlined the changes to domestic
  legislation introduced by the Third Money Laundering Directive and consulted on
  options for implementation where the UK has flexibility.

  Following the results of that consultation, the Government published draft Money
  Laundering Regulations in 2007 for consultation. These regulations replaced the
  Money Laundering Regulations 2003. The consultation closed on 2 nd April 2007 and
  the Government implemented the regulations in December 2007.

  The Council‟s Anti-Money Laundering Policy has been updated to comply with the new


  Reporting on the Treasury Activity during 2008/09 will be in accordance with the
  following timetable:

                                  Date                          Meeting            Responsibility
 Strategy Report                  February 2008                 Cabinet/Council    CFO
 Quarterly Reports                Month after Quarter End       Cabinet            CFO
 Annual Treasury Report           August 2008                   Cabinet            CFO
                                                                                                                                                            Annex A
                                                      LOCAL GOVERNMENT INVESTMENTS (England)

                                                                    SPECIFIED INVESTMENTS

All investments listed below must be sterling-denominated.

Investment                                      Share/ Loan   Repayable/      Security /                Capital        Circumstance of use         Maximum
                                                Capital?      Redeemable      Minimum         Credit    Expenditure?                               period
                                                              within     12   Rating
Debt Management Agency Deposit                  No            Yes             Govt-backed               NO             In-house                    1 year *
Facility* (DMADF)
* this facility is at present available for
investments up to 6 months

Term deposits with the UK government            No            Yes             High          security    NO             In-house                    1 year
or with English local authorities (i.e. local                                 although LAs not
authorities as defined under Section 23 of                                    credit rated.
the 2003 Act) with maturities up to 1 year

Term deposits with credit-rated deposit         No            Yes             Yes-varied                NO             In-house                    1 year
takers (banks and building societies),                                        Fitch/Moody‟s rating F1
including    callable     deposits, with                                      And Support4,3,2,1
maturities up to 1 year
Certificates of Deposit issued by               No            Yes             Yes-varied                NO             External            fund    1 year
credit-rated deposit takers (banks and                                        Fitch/Moody‟s rating F1                  managers
building societies) : up to 1 year.                                           And Support4,3,2,1

Custodial arrangement required prior to
Gilts : up to 1 year                            No            Yes             Govt-backed               NO             (1) Buy and hold to         1 year
                                                                                                                       maturity : to be used in-
                                                                                                                       house after consultation/
Custodial arrangement required prior to                                                                                advice from Sector
purchase                                                                                                               (2) for trading : by
                                                                                                                       external     cash   fund
                                                                                                                       manager(s) only subject
                                                                                                                       to the guidelines and
                                                                                                                       parameters agreed with
Investment                                       Share/ Loan   Repayable/      Security /                Capital          Circumstance of use        Maximum
                                                 Capital?      Redeemable      ‘High’ Credit Rating      Expenditure?                                period
                                                               within     12   criteria
Money Market Funds                               No            Yes             Triple A rated            NO               In-house and by external   the      period   of
These funds do not have any maturity date                                                                                 fund managers subject to   investment may not
                                                                                                                          the    guidelines   and    be determined at
                                                                                                                          parameters agreed with     the     outset   but
                                                                                                                          them                       would be subject to
                                                                                                                                                     cash      flow  and
Forward deals with credit rated banks            No            Yes             Yes-varied                NO               In-house                   1     year       in
and building societies < 1 year (i.e.                                          Fitch/Moody‟s rating F1                                               aggregate
negotiated deal period plus period of deposit)                                 And Support4,3,2,1

Treasury bills                                   No            Yes             Govt-backed               NO               In-house and external      1 year
[Government debt security with a maturity                                                                                 fund managers subject to
less than one year and issued through a                                                                                   the    guidelines   and
competitive bidding process at a discount to                                                                              parameters agreed with
par value]                                                                                                                them

Custodial arrangement required prior to

Monitoring of credit ratings:
All credit ratings will be monitored monthly. If a counterparty or investment scheme is downgraded with the result that it no longer meets the Council‟s minimum credit
criteria, the use of that counterparty / investment scheme will be withdrawn.
Any intra-month credit rating downgrade which the Council has identified that affects the Council‟s pre-set criteria will also be similarly dealt with.
                                                                LOCAL GOVERNMENT INVESTMENT (England)

                                                                              NON-SPECIFIED INVESTMENTS

  All investments listed below must be sterling-denominated.

Investment                   (A) Why use it?                                  Share/ Loan   Repayable/      Security /             Capital   Circumstance    Max % of Maximum
                             (B) Associated risks?                            Capital?      Redeemable      Minimum       credit   Expen-    of use          overall     maturity of
                                                                                            within     12   rating **              diture?                   investments investment
Term     deposits     with   (A) (i) Certainty of rate of return over         No            No              Yes-varied             NO        in-house                    5 years
credit    rated   deposit    period invested. (ii) No movement in                                           Fitch/Moody‟s rating
takers     (banks     and    capital value of deposit despite changes                                       F1
building societies) with     in interest rate environment.                                                  And Support4,3,2,1
maturities greater than 1
year                         (B) (i) Illiquid : as a general rule, cannot
                             be traded or repaid prior to maturity.
                             (ii) Return will be lower if interest rates
                             rise after making the investment.
                             (iii) Credit risk : potential for greater
                             deterioration in credit quality over longer
Certificates of Deposit      (A) (i) Although in theory tradable, are         No            Yes             Yes-varied             NO        To be used by               5 years
with credit rated deposit    relatively illiquid.                                                           Fitch/Moody‟s rating             external cash
takers     (banks     and                                                                                   F1                               fund
building societies) with     (B) (i) „Market or interest rate risk‟ : Yield                                 And Support4,3,2,1               manager(s)
maturities greater than 1    subject to movement during life of CD                                                                           only
year                         which could negatively impact on price of
Custodial    arrangement     the CD.
required      prior     to
Investment                 (A) Why use it?                                  Share/ Loan   Repayable/      Security /             Capital   Circumstance         Max % of Maximum
                           (B) Associated risks?                            Capital?      Redeemable      Minimum       Credit   Expen-    of use               overall     maturity of
                                                                                          within     12   Rating?                diture?                        investments investment
Callable deposits with     (A) (i) Enhanced income ~ Potentially            No            No              Yes-varied             NO        to be used in-                   5 years
credit rated deposit       higher return than using a term deposit                                        FitchMoody‟s rating              house      after
takers    (banks    and    with similar maturity.                                                         F1                               consultation/
building societies) with                                                                                  And Support4,3,2,1               advice     from
maturities greater than    (B) (i) Illiquid – only borrower has the                                                                        Sector
1 year                     right to pay back deposit; the lender does
                           not have a similar call. (ii) period over
                           which investment will actually be held is
                           not known at the outset. (iii) Interest rate
                           risk : borrower will not pay back deposit if
                           interest rates rise after deposit is made.
UK government gilts        (A) (i) Excellent credit quality. (ii)Very       No            Yes             Govt backed            NO        (1) Buy and
with   maturities in       Liquid.                                                                                                         hold to maturity
excess of 1 year           (iii) If held to maturity, known yield (rate                                                                    : to be used in-
                           of return) per annum ~ aids forward                                                                             house       after
Custodial arrangement      planning. (iv) If traded, potential for                                                                         consultation/
required    prior  to      capital gain through appreciation in value                                                                      advice      from
purchase                   (i.e. sold before maturity) (v) No currency                                                                     Sector
                           risk                                                                                                            (2) for trading :
                                                                                                                                           by       external
                           (B) (i) „Market or interest rate risk‟ : Yield                                                                  cash         fund
                           subject to movement during life of                                                                              manager(s)
                           sovereign bond which could negatively                                                                           only subject to
                           impact on price of the bond i.e. potential                                                                      the guidelines
                           for capital loss.                                                                                               and
                                                                                                                                           agreed        with
Investment                (A) Why use it?                                 Share/ Loan   Repayable/      Security /               Capital   Circumstance       Max % of Maximum
                          (B) Associated risks?                           Capital?      Redeemable      Minimum        credit    Expen-    of use             overall     maturity of
                                                                                        within     12   rating **                diture?                      investments investment

Forward deposits with     (A) (i) Known rate of return over period        No            No              YES-varied               NO        To be used in-                 5 years
credit rated banks and    the monies are invested ~ aids forward                                        FitchMoody‟s rating                house      after
building societies for    planning.                                                                     F1                                 consultation/
periods > 1 year (i.e.                                                                                  And Support 4,3,2,1                advice     from
negotiated deal period    (B) (i) Credit risk is over the whole period,                                                                    Sector.
plus period of deposit)   not just when monies are actually
                          (ii) Cannot renege on making the
                          investment if credit rating falls or interest
                          rates rise in the interim period.

Deposits          with    A) Credit standing of parent will               No            Yes             Not rated in their own   NO        In-house                       R
unrated        deposit    determine ultimate extent of credit risk                                      right, but parent must
takers (banks and                                                                                       be rated.
building    societies)
but               with
financial   guarantee
from HMG or credit-
rated           parent
institution   :    any

Unrated        deposit    Credit quality unknown; therefore credit        No            Yes             No                       NO        In-house
takers (banks and         risk unquantifiable.
building   societies)
which do not have an
guarantee     :   any

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