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Research Guidance Sheet F11

Date: 3rd September 2011

Guidelines for the management of Foreign Currency transactions in Research Grants


Introduction The undertaking of research projects, in a globalised economy and research environment, dictates that on occasion we will be dealing with transactions involving overseas currency. Such transactions must be converted back into Australian currency. This can provide a financial risk to the research project and the University if the exchange rate (the value of the Australian dollar vs the overseas currency) becomes significantly unfavourable against the time when the initial agreement or equipment quote was made. In general, it is the policy of the University that any exchange rate gain or loss will be met either within the research project funds or via the faculty, school or SRC. As such the foreign currency transactions can represent a significant risk to the project funds available. In general an exchange rate risk will occur in one of the following three situations: 1) A research project involves being paid in a foreign currency 2) A piece of equipment related to a research project is to be purchased from an overseas manufacturer. In this instance a quote may be received to support the application however the outcome of the awarding of the grant (and the purchase of the equipment) may not occur for some time during which time the quote becomes invalid and can be subject to exchange rate influence. 3) A research project is funded in Australian dollars, but expenditure to fulfil the research obligations is incurred in a foreign currency (especially for the employment of foreign staff). Page 1 of 3

The purpose of this document is to provide guidance as to some mechanisms to limit the financial risk to the research project and points of contact to discuss the options available. Exchange Rate Risk Mitigation The question of how to mitigate the projects exchange rate risk should be part of the initial project plan and considered as part of negotiations with funding agencies and equipment suppliers.

1) Research project involves being paid in a foreign currency In relation to point 1 and 3 above, the foreign exchange risk associated with a research project being paid in a foreign currency may be reduced via a) Negotiating where possible the payments to be made in Australian dollars b) Where possible, inserting an agreement clause that allows for a change in the value of the payment should the exchange rate move outside of an agreed rate. This is a strategy that has been employed successfully by Deakin in the past. c) Including a 5% buffer in the exchange rate (adding 5% onto the current exchange rate) when converting the grant from Australian dollars into overseas currency in the projects costing. The current exchange rate can be found at www.travelex.com.au d) Where points a) and b) are not agreeable to the funding agency, Deakin University may be able to organise a hedging (Forward Exchange Contract) of the grant.

To expand on point d above, hedging involves the purchase of the overseas currency at the start of the research project and selling it at the same time as the research grant project funds come in. As such any exchange fluctuations will be offset. Hedging arrangements usually only last for 12 month periods after which time the exchange may need to be renegotiated. Hedging of foreign exchange should be considered for any contract that includes a receipt or payment in a foreign exchange that equates to $50,000 (AUD) or more. Please note that a hedge transaction typically results in a fee or reduction in the amount paid into the research grant of between .3% to 10% of the grant value. Further renegotiation of a hedge agreement may result in additional fees. These fees should be included in the project budget. Page 2 of 3

2) Purchase of equipment, the price of which is susceptible to exchange rate fluctuations The mitigation of price fluctuations in equipment which may be caused by changes in the exchange rate is difficult to plan for and manage due to: a) The time between the receipt of a quote and the subsequent awarding and purchase of the equipment which may be months b) The reduction in the benefit of any hedge as it is not known if the research project application will be successful. As such the most important risk mitigation strategies are to: 1) (Where possible) purchase locally manufactured equipment or obtain a quote from a foreign supplier in Australian dollars.

2) Ensure you do not negotiate strongly on the initial quote however if the research project is successful and you are aware of your funding, use this opportunity to negotiate for a sharper deal. The presence of 2 or more potential suppliers assists in this negotiation. Again be aware that it is the policy of the University that any exchange rate gain or loss will be met either within the research project funds or via the faculty, school or SRC. Contacts for further assistance For further information or advice please contact the Manager- Research Operations and Finance Further if Hedging is the agreed option then this can also be arranged via the Manager- Research Operations and Finance. Please note that the final decision upon whether to hedge will be made will rest with the Financial Controller- Deakin University.

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