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II. Scope and Objectives

Purpose

• 1. Define what activities are subject to the policy.


• 2. Define the objectives of the Interest Rate Risk Management Policy.


• 3. Establish interest rate risk management goals.

Scope

The Interest Rate Risk Management Policy applies to any derivatives used for the purpose of hedging interest rate exposures. This policy does not apply to derivatives used by the University of Virginia Investment Management Company in its management of the University’s endowment and assets or any University-related foundations.

Additionally, any decisions made regarding the use of derivatives must take into consideration the resulting impact under the University’s Debt Policy.

Objectives

This policy is intended to:

• (i) Outline the University’s philosophy on derivatives


• (ii) Provide guidelines on the use of derivatives


• (iii) Identify approved derivative instruments


• (iv) Establish a control framework related to the use of derivatives

The University views derivatives as a tool to achieve its asset and liability management objectives. As a result, it is the University’s philosophy to use derivatives strategically in support of this cause. It is also the University’s philosophy to not use derivatives to create leverage or speculate on interest rate movements. The University recognizes that the prudent and selective use of derivatives may help it to lower its cost of debt capital and manage its interest rate exposure.

This policy provides guidelines on the use of derivatives including the circumstances under which they may be used and the factors that are considered in deciding whether to usethem. Derivatives may be used to achieve the following objectives:

• (i) Reduce the cost for debt financing when compared to conventional debt structures


• (ii) Manage interest rate volatility

• (iii) Manage fixed- and variable-rate debt mix


• (iv) Help match the cash flows from assets with those from liabilities


• (v) Hedge future debt issues or synthetically advance refund bonds

This policy also outlines framework to ensure that an appropriate discipline is in place regarding the use of derivitatives. Controls exist to address both operational risks and exposure risks.