Introduction
CA-5.5.1
This section describes the standardised method for calculation of the bank's foreign exchange risk, and the capital required against that risk.
Apr 08CA-5.5.2
The measurement of the foreign exchange risk involves, as a first step, the calculation of the net open position in each individual currency including gold and/or silver and as a second step, the measurement of the risks inherent in the bank's mix of assets and liabilities positions in different currencies.
Apr 08CA-5.5.3
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 must be agreed in advance with the CBB. The CBB will consider the appropriate treatment on a case by case basis.
Apr 08CA-5.5.4
The open positions and the capital requirements are calculated with reference to the entire business (i.e. the banking and trading books).
Apr 08CA-5.5.5
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).
Apr 08CA-5.5.6
In addition to foreign exchange risk, positions in foreign currencies may be subject to credit risk which should be treated separately. For the purposes of calculating "Foreign Exchange Risk" only, positions in those GCC currencies which are pegged to US$, will be treated as positions in US$.
Apr 08
