CA-3.4 CA-3.4 Foreign Exchange Risk Requirement (FER)
CA-3.4.1
The foreign exchange requirement is 10% of the net open foreign currency position.
Amended: October 2009CA-3.4.2
For each foreign currency (that is, any other currency other than that in which the
investment firm licensee's financial statements are presented) in which theinvestment firm licensee has monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in that currency, theinvestment firm licensee should calculate the net open position (netting assets and liabilities). This should be converted into the presentation currency. Where the price of an investment is quoted in more than one currency, a position in the investment shall be treated as an asset or a liability in the currency of the country in which the main or principal market in the investment is based. (Options included in the position risk requirement are to be excluded from these calculations).Amended: October 2009CA-3.4.3
Monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in currencies of Gulf Cooperation Council countries or United States dollar are exempted for the purposes of calculating regulatory capital requirement.
Amended: October 2009
Amended: January 2007CA-3.4.4
An
investment firm licensee's foreign exchange risk calculation must include the following items regardless of whether they are trading or non-trading positions(a) All spot positions in foreign currency (that is, all asset items less all liability items, including accrued interest, in the foreign currency in question); and(b) All forwards positions in foreign currency (net present value in respect of notional position).Amended: October 2009CA-3.4.5
An
investment firm licensee's foreign exchange risk calculation shall not include the following:(a) Foreign currency assets which have been deducted in full from the firm's capital resources under the calculation under the capital resources table;(b) Position hedging where it is of a non trading or structural nature;(c) Positions of a non trading or structural nature that a firm has deliberately taken in order to hedge against the adverse effect of the exchange rate on the ratio of its capital resources to its capital resources requirements; and(d) Transactions to the extent that they fully hedge net future foreign currency income or expenses which are known but not yet accrued.Amended: October 2009CA-3.4.6
Where an
Investment firm licensee does not include position hedging in its foreign exchange risk calculation, it shall:(a) Notify the CBB before such exclusion and the terms on which the relevant item will be excluded;(b) Document its policy in the use of that exclusion in its trading book policy statement.Adopted: October 2009CA-3.4.7
The net overall position is the sum of all the spot and forward positions. (Note that all the positions should be converted into the presentation currency)
Adopted: October 2009CA-3.4.8
Spot net position is calculated as the difference between the gross spot assets and gross spot liabilities. Forward net position is calculated as the difference between the gross forward purchases and gross forward sales
Adopted: October 2009
