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CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 2 DEPOSITS AND INVESTMENTS (CONTINUED) B. Investments The City may also invest idle funds as authorized by Minnesota Statutes as follows • Direct obligations or obligations guaranteed by the United States or its agencies. • Shares of investment companies registered under the Federal Investment Company Act of 1940 and received the highest credit rating, are rated in one of the two highest rating categories by a statistical rating agency and all of the investments have a finial maturity of thirteen months or less. • General obligations rated "A" or better; revenue obligations rated "AA" or better. • General obligations of the Minnesota Housing Finance Agency rate "A" or better. • Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System. • Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest quality category by a least two nationally recognized rating agencies, and maturing in 270 days or less. • Guaranteed investment contracts guaranteed by United States commercial banks or domestic branches of foreign banks or United States insurance companies if similar debt obligations of the issuer or the collateral pledged by the issuer is in the top two rating categories. • repurchase or reverse purchase agreement and securities lending agreements financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a -primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker -dealers. Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of failure of the counterparty, the City will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. The City's investment policy doesn't specifically address custodial credit risk. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The City's investment policy doesn't specifically address interest rate risk. Information about the sensitivty of the fair values of the City's investments to market interest rate risk fluctuations is provided by the following table that shows the distribution of the City's investments by maturity: (23)