Benchmark and Strategy

The Agency's primary objectives are, first, to protect liquidity in order to ensure that the Exchequer's current and future funding needs can be financed prudently and cost effectively and, secondly, to ensure debt service costs are kept to a minimum subject to containing risk within acceptable limits. In addition to achieving these objectives, the Agency's performance is measured by reference to an externally approved and audited benchmark portfolio (the "Benchmark").

The Benchmark reflects the medium term strategic debt management objectives of the Exchequer and represents an appropriate target interest rate and currency profile for the portfolio. Revisions to the Benchmark are made from time to time (subject to appropriate external approvals) to take account of significant changes in structural economic relationships but not in response to short term market movements. In effect the Benchmark, which is approved by the Minister for Finance, represents the debt management strategy.

This Benchmark performance measurement system takes account not just of current cash outflows but also of the net present value of all future liabilities; in effect it calculates the impact of the Agency's actions not only in the year under review but also their projected impact over the full life of the debt. The performance results achieved are verified by independent auditors.

The Agency has developed risk management tools that measure the sensitivity of performance relative to the Benchmark to possible future movements in interest rates and exchange rates. These models incorporate both sensitivity and Value at Risk measures. Risk control limits are used to contain, within an acceptable range, the Agency's performance exposure.

The Agency follows industry best practice in the quantification and distribution of decision support information and has systems in place that allow detailed performance and risk management information to be calculated daily and networked electronically to the Agency's portfolio managers and senior management.