The Prudential Regulation and Management of Foreign Exchange Risk
33 Pages Posted: 15 Feb 2006
Date Written: March 1998
Abstract
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.
Keywords: prudential regulation, foreign exchange, risk, foreign currency, banking supervision
JEL Classification: F31, G28
Suggested Citation: Suggested Citation