CA-5.1 CA-5.1 Introduction
CA-5.1.1
This section describes the standardised method for calculation of the bank's foreign exchange risk, and the capital required against that risk.
CA-5.1.2
The measurement of the foreign exchange risk involves, as a first step, the calculation of the net open position in each individual currency including gold1 and as a second step, the measurement of the risks inherent in the bank's mix of assets and liabilities positions in different currencies.
1 Positions in gold should be treated as if they were foreign currency positions, rather than commodity positions, because the volatility of gold is more in line with that of foreign currencies and most banks manage it in a similar manner.
CA-5.1.3
A bank that holds net open positions (whether assets or liabilities) in foreign currencies is exposed to the risk that exchange rates may move against it. The open positions may be either trading positions or, simply, exposures caused by the bank's overall assets and liabilities. Where the bank is involved in option transactions, these should be agreed in advance with the Agency. The Agency will consider the appropriate treatment on a case by case basis.
CA-5.1.4
The open positions and the capital requirements are calculated with reference to the entire business (i.e. the banking and trading books).
CA-5.1.5
The open positions are calculated with reference to the bank's base currency, which will be either Bahraini Dinars (BD) or United States dollars (USD).
CA-5.1.6
In addition to foreign exchange risk, positions in foreign currencies may be subject to credit risk which should be treated separately.
