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Exchange Risk Management
The Bank believes that the exchange risk definition includes existing and potential exposure of earnings and capital resulting from unfavorable fluctuations in exchange rates and precious metal prices.
Exchange risk management is the process enabling the Bank to identify, assess, monitor exchange risks, control and limit the Bank's foreign exchange exposure and account for interrelation between exchange risk and other risks.
The Bank has developed VAR methodology to manage, assess and control exchange risks (methodology to assess potential losses from foreign exchange exposure through exchange risk factor). The Bank also uses Stop-out and Stop-loss instruments. All internal control systems are subject to back testing and stress testing.
Indices and standard ratios for bank foreign exchange position (% of regulatory capital)
total open position
total long open position
total short open position
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Exchange risk management process in the Bank includes:
analysis of closing dates
regular assessment of exposed value VAR - potential capital losses of the Bank in the event of unfavorable fluctuation in exchange rates and precious metal prices
establishing VAR-limits to limit maximum losses from exchange banking operations
Stop-out mechanism application and limiting maximum losses from dealers' operations
setting of daily limits for exchange exposure in interbank banking dealing operations based on VAR methodology
setting and review of exchange exposure limits by branch banks and businesses of the Head Bank broken down by key currencies and types of operations on regular basis
daily control over compliance with the prescribed limits by the Risk Management Service and Back Office
reporting forms and analytical materials, proposals are submitted to CALM for consideration and decision making
Seeking to minimize exchange risk, CALM monthly establishes and reviews corporate limits for exchange risks upon they are proposed by the Risk Management Department.
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NBU's standard |
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as at 01.01.2006 |
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