Examples of amounts to be received or paid

● payments under currency futures

● the principal on currency swaps not included in the spot position

● interest from futures, swaps and other interest rate transactions.

(c) irrevocable guarantees (and similar instruments) that are certain to be called and likely to be irrecoverable;

(d) net future income/expenses not yet accrued but already fully hedged, at the discretion of the Bank; and

(e) any other items representing a profit or loss in foreign currencies or an exposure to risk in foreign currencies (for example, a specific provision held in the currency in question where the underlying asset is held in a different currency).

65. The Bank may also include in its currency exposure any net future income or expenses that are not yet accrued but already fully hedged. If the Bank includes such income or expenses, it must do so consistently and must not select only expected future flows that reduce its position.

66. If the Bank has deliberately taken a position to partly or totally protect itself against the adverse effect of a change in an exchange rate on its capital adequacy ratio, it may exclude the position from its currency exposure insofar as it relates to that hedge, if:

(a) the position is of a structural and non-trading nature;

(b) the structural position does no more than protect the Bank’s capital adequacy ratio;

(c) the position cannot be traded for speculative or profit-making purposes; and

(d) the exclusion of the position is done consistently, with the treatment of the hedge remaining the same for the life of the assets or other items.

67. A structural position includes:

(a) a position arising from an instrument that satisfies the criteria for inclusion as capital under Chapter 4 of BBR;

(b) a position in relation to a net investment in a self-sustaining subsidiary, the accounting consequence of which is to reduce or eliminate what would otherwise be a movement in the foreign currency translation reserve; and

(c) an investment in an overseas subsidiary or other entity in the same corporate group as the Bank that, under these Rules, is deducted from the Bank’s capital for capital adequacy purposes.

68. A Bank must include any currency exposures arising from equity, commodity and interest positions as well as interest accrued and accrued expenses as positions. If a Bank includes future income/expenses it must do so on a consistent basis and not include only those expected future flows that reduce its position.

69. A Bank may exclude any positions which it has deliberately taken in order to hedge partially or totally against the adverse effect of the exchange rate on its Capital Resources, from the calculation of net open currency positions, if each of the following conditions is met:

(a) the positions are of a structure that is of a non-dealing nature;

(b) the Bank has notified the AFSA in writing of its intention to rely upon this Rule; and

(c) any exclusion of the position must be applied consistently, with the treatment of the hedge remaining the same for the life of the assets or other items.

70. A Bank need not include positions related to items which are deducted from its capital when calculating its Capital Resources, including investments in non-consolidated subsidiaries; or other long-term participations denominated in Foreign Currencies which are reported in the published accounts at historic cost.

71. If a Bank is assessing its foreign exchange risk on a consolidated basis, and the inclusion of the currency positions of a marginal operation of the Bank is technically impractical, the Bank may use, as a proxy for those positions, the internal limit in each currency that the Bank applies to the operation. Marginal operation, in relation to a Bank, is an operation that accounts for less than 5% of the Bank’s total currency positions. The absolute values of the limits must be added to the net open position in each currency, but only if the actual positions are adequately monitored against those internal limits.

72. For a Bank that does not write options, net open position in a foreign currency is the sum of:

(a) the Bank’s currency exposures as specified in Section E of this BPG for the currency; and

(b) the value of the options and their associated underlying assets measured using the simplified approach for options risk capital requirement specified in this BPG.

73. For a Bank that writes options, net open position in a foreign currency is the sum of:

(a) the Bank’s currency exposures as specified in Section E of this BPG for the currency; and

(b) either:

(i) the net delta-based equivalent of the Bank’s total book of foreign currency options (with separately calculated capital charges for gamma risk and vega risk under Division 6.3.C); or

(ii) the value of the options and their associated underlying assets under the delta-plus method in Division 6.3.C.

74. A 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 the reporting currency 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 two sums (total of all net short positions and total of all net long positions) referred in (c) above of this paragraph.

75. The Bank must then calculate its net position in gold by:

(a) valuing all gold positions using the reporting currency at current spot price (regardless of maturity); and

(b) offsetting long and short positions

76. A Bank must value forward currency and gold positions at the current spot market exchange rates and report positions in a currency pair separately as if each were a currency on its own.

77. The capital charge for foreign exchange risk of a Bank is the sum of:

(a) 8% of the 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.