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Risk Management Activities

The Province employs various risk management strategies and operates within strict risk exposure limits to ensure exposure to risk is managed in a prudent and cost-effective manner. A variety of strategies are used, including the use of derivative financial instruments (“derivatives”). Risk exposures are monitored daily and audited annually. The cost-effectiveness of borrowing and debt management programs are measured daily, while the effectiveness of the money market program is measured monthly against pre-established benchmarks.

The Province's total derivative portfolio as at September 30, 2011 had a notional value of $201.6 billion, which consisted of $121.1 billion in interest rate swaps, $68.8 billion in cross-currency swaps, $10.7 billion in forward foreign exchange contracts and $1.0 billion in swaptions.

The table below details the limits and strategies employed to ensure that market, credit and liquidity risks are managed in a sound and cost-effective manner.

Risk Management Limits and Strategies

	Risk	Status
Foreign Exchange Risk	As per the Market Risk Policy, currency exposure on debt principal cannot exceed 5 per cent of debt.	Net foreign exchange exposure was 1.1 per cent of debt as at September 30, 2011. Foreign exchange exposure has remained within approved limits during the fiscal year.
Interest Rate Resetting Risk	This measure limits interest rate resetting risk arising from net floating rate exposure and fixed-rate debt maturing within a 12-month period, to no more than 35 per cent of debt. Prior to February 21, 2007, the limit was 25 per cent.	The percentage of interest rate resetting exposure (net of liquid reserves) was 5.8 per cent of debt as at September 30, 2011. Net interest rate resetting exposure has remained within approved limits during the fiscal year.
Debt Maturities and Refinancing Risk	Term selection for new borrowing will be aimed for a smooth maturity schedule to diversify the interest resetting risk of refinancing debt maturities.	Debt maturities are estimated at $13.9 billion for 2011–12.
Credit Risk	Ontario only enters into transactions with highly rated counterparties.	As at September 30, 2011, over 96 per cent of Ontario’s credit exposure was to counterparties that are rated "AA minus" or better.
Liquidity Risk	Liquidity risk is controlled through the management of liquid reserve levels and short-term borrowing programs.	The average level of daily liquid reserves from April 1, 2011 to September 30, 2011 was $21.2 billion, net of collaterals. The Province’s Treasury Bill and U.S. Commercial Paper programs have authorized limits of $30.5 billion and $5.0 billion, respectively.