FY2016 CCDOA Financial Report as of 6302016.pdf - page 65

Notes to Financial Statements
For the Fiscal Years Ended June 30, 2016 and 2015
(b) Interest Rate Risk
Interest rate risk is defined as the risk that changes in interest rates will adversely affect the fair value of
an investment. Through its investment policy, the County manages its exposure to fair value losses
arising from increasing interest rates by limiting the average weighted duration of its investment pool to
fewer than 2.5 years. Duration is a measure of the present value of a fixed income security’s cash flows
and is used to estimate the sensitivity of a security’s price to interest rate changes.
(c) Interest Rate Sensitivity
As of June 30, 2016, the County invested in the following types of securities that have a higher sensitivity
to interest rates:
Callable securities
are directly affected by the movement of interest rates. Callable securities allow the
issuer to redeem, or call, a security before maturity, either on a given date or, generally, on coupon
Asset Backed Securities
are financial securities backed by a loan, lease, or receivable against assets
other than real estate and mortgage backed securities. These securities are subject to interest rate risk
in that the value of the assets fluctuates inversely with changes in the general levels of interest rates.
A Corporate Note Floater
is a note with a variable interest rate that is usually, but not always, tied to an
step-down securities
have fixed rate coupons for a specific time interval that will step up or
step down a predetermined number of basis points at scheduled coupon dates or other reset dates.
These securities are callable either one time or on their coupon dates.
(d) Credit Risk
Credit risk is defined as the risk that an issuer or other counterparty to an investment will not fulfill its
obligations. The County’s investment policy applies the prudent-person rule: "In investing the County’s
monies, there shall be exercised the judgment and care under the circumstances then prevailing
which persons of prudence, discretion, and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital as well
as the probable income to be derived." The County’s investments were rated by Moody’s Investors
Service ("Moody's") and Standard & Poor’s ("S&P") as follows:
1...,55,56,57,58,59,60,61,62,63,64 66,67,68,69,70,71,72,73,74,75,...169
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