Introduction
CA-5.5.1
This Section describes the standardised method for calculation of the
Islamic bank licensee's foreign exchange risk, and the capital required against that risk. An Islamicbank licensee which holds net open positions (whether long or short) in foreign currencies is exposed to the risk that exchange rates may move against it.January 2015CA-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 silver using the closing mid-market spot rate and as a second step, the measurement of the risks inherent in the bank's mix of assets and liabilities positions in different currencies.
January 2015CA-5.5.3
An
Islamic bank licensee 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 theIslamic bank licensee's overall assets and liabilities.January 2015CA-5.5.4
The open positions and the capital requirements are calculated at the closing mid-market spot rate with reference to the entire business (i.e. the banking and trading books).
January 2015CA-5.5.5
The open positions are calculated with reference to the
Islamic bank licensee's base currency, which will be either Bahraini Dinars (BD) or United States dollars (USD).January 2015CA-5.5.6
In addition to foreign exchange risk, positions in foreign currencies may be subject to counterparty credit risk which must be treated separately as shown in Appendix CA-2. For the purposes of calculating "Foreign Exchange Risk" only, positions in those GCC currencies which are pegged to US$, is treated as positions in US$.
January 2015
