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  • CA-5.3 CA-5.3 Calculation of net open positions

    • CA-5.3.1

      A bank's exposure to foreign exchange risk in any currency is its net open position in that currency, which is calculated by summing the following items:

      (a) The net spot position in the currency (i.e. all asset items less all liability items, including accrued profit, other income and expenses, denominated in the currency in question; assets are included gross of provisions for bad and doubtful debts, except in cases where the provisions are maintained in the same currency as the underlying assets);
      (b) The net forward position in the currency (i.e. all amounts to be received less all amounts to be paid under forward foreign exchange contracts, in the concerned currency);
      (c) Guarantees and similar off-balance sheet contingent items that are certain to be called and are likely to be irrecoverable where the provisions, if any, are not maintained in the same currency;
      (d) Profits (i.e. the net value of income and expense accounts) held in the currency in question; and
      (e) Specific provisions held in the currency in question where the underlying asset is in a different currency, net of assets held in the currency in question where a specific provision is held in a different currency.
      October 07

    • CA-5.3.2

      For calculating the net open position in gold, the bank will first express the net position (spot plus forward) in terms of the standard unit of measurement (i.e. ounces or grams) and then convert it at the current spot rate into the base currency.

      October 07

    • CA-5.3.3

      Where gold is part of a forward contract (i.e. quantity of gold to be received or to be delivered), any foreign currency exposure from the other leg of the contract should be reported.

      October 07

    • Structural positions

      • CA-5.3.4

        Positions of a structural nature (i.e. non-dealing), may be excluded from the calculation of the net open currency positions, these include positions related to items that are deducted from the bank's capital when calculating its capital base in accordance with the rules and guidelines issued by the Central Bank, such as investments denominated in foreign currencies in non-consolidated subsidiaries.

        October 07

      • CA-5.3.5

        The Central Bank will consider approving the exclusion of the above positions for the purpose of calculating the capital requirement, only if each of the following conditions is met:

        (a) The concerned bank provides adequate documentary evidence to the Central Bank which establishes the fact that the positions proposed to be excluded are, indeed, of a structural nature (i.e. non-dealing) and are merely intended to protect the bank's capital adequacy ratio. For this purpose, the Central Bank may ask written representations from the bank's management or Directors.
        (b) Any exclusion of a position is consistently applied, with the treatment of the structural positions remaining the same for the life of the associated assets or other items.
        October 07

    • Calculation of the overall net open position

      • CA-5.3.6

        The net position in each currency is converted at the spot rate, into the reporting currency. The overall net open position is measured by aggregating the following:

        (a) The sum of the net liabilities positions or the sum of the net asset positions whichever is greater
        (b) The net position (liabilities and assets) in gold, regardless of sign
        October 07

      • CA-5.3.7

        Where the bank is assessing its foreign exchange on a consolidated basis, it may be technically impractical in the case of some marginal operations to include the currency positions of a foreign branch or subsidiary of the bank. In such cases, the internal limit for that branch/subsidiary, in each currency, may be used as a proxy for the positions. The branch/subsidiary limits should be added, without regard to sign, to the net open position in each currency involved. When this simplified approach to the treatment of currencies with marginal operations is adopted, the bank should adequately monitor the actual positions of the branch/subsidiary against the limits, and revise the limits, if necessary, based on the results of the ex-post monitoring.

        October 07