The Prudential Regulation and Management of Foreign Exchange Risk

Author/Editor:

Richard K. Abrams ; Paulina Beato

Publication Date:

March 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines issues in the prudential management and regulation of foreign exchange risk. It begins with measurement issues, notably converting foreign currency items into domestic currency terms, and calculating foreign exchange positions. The focus then shifts to managing foreign exchange risks. Although the key to effective management lies in the bank’s reporting and internal control systems, regulators frequently seek to limit such risks directly. This usually involves limiting the overall open position in terms of bank capital or requiring that capital be set aside against such risks.

Series:

Working Paper No. 1998/037

Subject:

Banking Currencies Exchange rate risk Exchange rates Financial regulation and supervision Foreign currency exposure Foreign exchange Money

English

Publication Date:

March 1, 1998

ISBN/ISSN:

9781451845549/1018-5941

Stock No:

WPIEA0371998

Pages:

33

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