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CITY OF GEM LAKE, MINNESOTA <br />NOTES TO BASIC FINANCIAL STATEMENTS <br />DECEMBER 31, 2019 <br /> <br /> <br /> <br />(22) <br /> <br />NOTE 2 DEPOSITS AND INVESTMENTS (CONTINUED) <br />B. Investments (Continued) <br /> <br /> Repurchase or reverse purchase agreement and securities lending agreements <br />financial institutions qualified as a “depository” by the government entity, with <br />banks that are members of the Federal Reserve System with capitalization <br />exceeding $10,000,000, a primary reporting dealer in U.S. government securities <br />to the Federal Reserve Bank of New York, or certain Minnesota securities <br />broker-dealers. <br /> Any security which is an obligation of a school district with an original maturity not <br />exceeding 13 months and (i) rated in the highest category by a national bond <br />rating service (ii) enrolled in athe cedit enhancement program pursuant to <br />Minnesota Statute §126C.55 <br /> <br />Custodial Credit Risk <br />For an investment, custodial credit risk is the risk that, in the event of failure of the <br />counterparty, the City will not be able to recover the value of its investment or collateral <br />securities that are in the possession of an outside party. The City’s investment policy <br />doesn’t specifically address custodial credit risk. <br /> <br />Interest Rate Risk <br />Interest rate risk is the risk that changes in interest rates will adversely affect the fair <br />value of an investment. Generally, the longer the maturity of an investment, the greater <br />the sensitivity of its fair value to changes in market interest rates. The City’s investment <br />policy doesn’t specifically address interest rate risk. Information about the sensitivty of <br />the fair values of the City’s investments to market interest rate risk fluctuations is <br />provided by the following table that shows the distribution of the City’s investments by <br />maturity: <br /> <br />Investment Type Total Less Than 1 1 to 2 2 to 5 Rating <br />Negotiable Certificates of Deposit 584,252$ 175,976$ -$ 408,276$ Not Rated <br />Money Markets 8,222 8,222 - - Aaa/AAA <br />Total 592,474$ 184,198$ -$ 408,276$ <br />Maturity Duration in Years <br /> <br />Credit Risk <br />Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation <br />to the holder of the investment. This is measured by the assignment of a rating by a <br />nationally recognized statistical rating organization. The City’s investment policy does <br />not specifically address credit risk. <br />