8.17. Capital charge—foreign exchange risk

(1) For an Islamic Bank that does not write options, net open position in a foreign currency is the sum of:

• (a) an Islamic Bank’s currency exposures under rule 8.15 for the currency; and
• (b) the value of the options and their associated underlying assets measured using the simplified approach.

(2) For an Islamic Bank that writes options, net open position in a foreign currency is the sum

of:

• (a) an Islamic Bank’s currency exposures under rule 8.15 for the currency; and
• (b) either:
• (i) the net delta-based equivalent of an Islamic Bank’s total book of foreign currency options (with separately calculated Capital charges for gamma risk and vega risk under Delta-plus method); or
• (ii) the value of the options and their associated underlying assets under the deltaplus method under Delta-plus method.

(3) An Islamic Bank must calculate its overall foreign currency net open position by:

• (a) calculating the net open position in each foreign currency;
• (b) converting the nominal amount (or net present value) of each such net position into US Dollar at the current spot market exchange rate;
• (c) adding all short net positions and adding all long net positions calculated under paragraphs (a) and (b); and
• (d) selecting the greater of the absolute values of the 2 sums in paragraph (c).

(4) An Islamic Bank must then calculate its net position in gold and silver by:

• (a) valuing all gold and silver positions using the US dollar current spot price (regardless of maturity);
• (b) offsetting long and short positions; and
• (c) converting the absolute value of the resulting net position into US Dollar.

(5) To convert the net position in gold and silver into US Dollar, an Islamic Bank must state the position (spot plus forward) in a standard unit of measurement and then convert the net position at the current spot market exchange rate.

(6) The Capital charge for foreign exchange risk of an Islamic Bank is the sum of:

• (a) 8% of an Islamic Bank’s overall foreign currency net open position in each of the foreign currencies it holds; and
• (b) 8% of its net position in gold and silver.