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LOS ANGELES COUNTY CHILDREN AND FAMILIES FIRST – PROPOSITION 10 COMMISSION (a Component Unit ... - page 25 / 47

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LOS ANGELES COUNTY CHILDREN AND FAMILIES FIRST – PROPOSITION 10 COMMISSION NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2009

NOTE 2 – CASH AND INVESTMENTS (Continued)

Specific Investments with Treasurer (continued)

Interest Rate Risk

Interest rate risk refers to the risk that changes in interest rates will affect the fair value of an investment. The Commission’s investment policy requires that all specific investments shall be managed by the Los Angeles County Treasurer. The County Treasurer’s Investment Policy limits investments in any specific purpose investment portfolio to the short-term category to mitigate interest rate risk.

Custodial Credit Risk

For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Commission will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. At year-end, the Commission’s investment pool and specific investments did not have any securities exposed to custodial credit risk and there was no securities lending.

Credit Risk

The County Treasurer’s Investment Policy limits investments in any specific purpose investment portfolio to the short-term category to mitigate interest rate risk and defines a minimum credit rating from Moody’s and Standard & Poors (S&P) for issuers of financial instruments to minimize credit risk. For an issuer of short- term debt, the rating must be no less than P-1 (Moody’s) or A-1 (S&P) while an issuer of long-term debt shall be rated no less that an A. At June 30, 2009, the Pooled Cash and Investments were not rated (NR).

Concentration of Credit Risk

The IPS also limits to no more than 5% of the total market value of funds that may be invested in securities of any one issuer, except for obligations of Federal agencies or U.S. Treasuries. At June 30, 2009, the credit ratings of the investments with County Treasurer and the related concentration of credit risk by investment type were as follows:

Standard &

Percentage

Moody’s

Poors

of Total

NR

NR

94%

Pooled Cash and Investments

Specific Investments: Federal agencies:

Federal Home Loan Mortgage Corp. Total

AAA

Aaa

6% 100%

22

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