Currency risk or foreign exchange risk is defined as the risk that the value of the Bank’s foreign currency positions may be adversely affected by movements in foreign exchange rates.
The Bank does not actively take foreign exchange risk in its core deposit taking and lending operations. However, the Bank services clients’ activity in products across foreign exchange and structured FX products and acting as a market maker dealer for corporate and institutional clients does require the management of ‘open positions’ from foreign exchange transactions with these counterparties.
These positions are monitored daily relative to prudential trading limits that have been delegated to dealers by the Board Risk Management Committee on intra-day and overnight open exposures. Transactions are mostly micro hedged or back to back with other banks.
The following observations can be made with regard to the Bank’s currency risk:
- The Bank’s net open, either overbought/oversold, position against the Rupee has been no more than 15% of Tier I capital, throughout the financial year ended 30 June 2014, which is in compliance with the Bank of Mauritius requirements.
- The following table presents the sensitivity of net profit to the fluctuation of the major currencies traded by the Bank. A 5% movement has been used against each currency.
|EFFECT ON PROFIT OF CHANGE
IN CURRENCY ON
|SENSITIVITY OF NET INCOME AND EQUITY|
|Currency||% change in currency rate||Assets||Liabilities||Assets||Liabilities|