The Prudential Regulation and Management of Foreign Exchange Risk
March 1, 1998
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Summary
This paper examines issues in the prudential management and regulation of foreign exchange risk. It begins with measurement issues, notably converting foreign currency items into domestic currency terms, and calculating foreign exchange positions. The focus then shifts to managing foreign exchange risks. Although the key to effective management lies in the bank’s reporting and internal control systems, regulators frequently seek to limit such risks directly. This usually involves limiting the overall open position in terms of bank capital or requiring that capital be set aside against such risks.
Subject: Banking, Currencies, Exchange rate risk, Exchange rates, Financial regulation and supervision, Foreign currency exposure, Foreign exchange, Money
Keywords: asset ratio, bank capital, banking supervision, capital requirement, cross-currency exchange risk, Currencies, Exchange rate risk, Exchange rates, foreign currency, Foreign currency exposure, foreign exchange, foreign exchange position, foreign exchange risk, foreign exchange-denominated capital, FX limit, Global, market risk, prudential regulation, recording foreign exchange transaction, risk, VAR model, WP
Pages:
33
Volume:
1998
DOI:
Issue:
037
Series:
Working Paper No. 1998/037
Stock No:
WPIEA0371998
ISBN:
9781451845549
ISSN:
1018-5941
