FirstChoice Wholesale Investments - Colonial First State

COLONIAL FIRST STATE - FIRSTCHOICE WHOLESALE INVESTMENT FUNDS10. FINANCIAL RISK MANAGEMENT (continued)NOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 30 JUNE 2011(c)Credit riskThe Funds are exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when theyfall due. Credit risk primarily arises from investments in debt securities and derivative products. Other credit risk arisesfrom cash and cash equivalents, deposits with banks and other financial institutions, amounts due from brokers and otherreceivables.Some Funds transact in derivatives in the over the counter (OTC) markets. OTC derivatives are entered into directly withthe counterparty as there is no Clearing House arrangement. Such transactions are only dealt through suitablycredit-worthy counterparties, whom have a minimum long term credit rating of BBB as rated by Standard and Poor’s oran equivalent agency. The maximum exposure to credit risk for these OTC derivatives is the contract/notional amount,as shown in Note 11.The Compliance Department of the Responsible Entity regularly monitors the credit risks that arise from holding thesesecurities.The exposure to credit risk for cash and cash equivalents is low as all counterparties have a rating of AA or higher (asdetermined by the Standard and Poor’s or equivalent agency).Page 138