One of the benefits of this has been that, though many companies and banks have borrowed overseas, none of this borrowing was undertaken in the belief that there was no currency risk involved. Overseas interest rates were frequently much lower than those in New Zealand but, after factoring in the exchange rate risk, the incentive to borrow offshore in foreign currency was substantially reduced.
Although valuation adjustments contributed positively to reported USD official reserves over the financial year, there were periods where the Bank published substantial declines in the level of reserves due to valuation losses stemming from the diversified nature of reserves in terms of currencies. The Financial Markets Department continued to enhance reserves management policies in order to adjust and streamline our investment strategies.